Though the Australian housing market has shown signs of a revival, with home values increasing for the fifth month in a row. Recently made interest rate cuts, attractive investment opportunities, and a growing economy combined with population growth will keep the activity booming, analysts say. This trend is most pronounced on markets including Darwin. As experts remind us, affordability constraints are still putting the brakes on housing price increases, locking out millions of would-be buyers.
In February, the Reserve Bank of Australia cut its key interest rates for the first time in almost five years. This very welcome decision, followed by a second cut in May, has now brought the cash rate below 4 percent. Chief economist at property listing website Domain, Eleanor Creagh, expects more cuts to the cash rate will support an increase in housing demand. Even with this optimism, she points out that housing is still out of reach for many Australians.
Market Trends and Changes in Household Structures
Tim Lawless, a leading voice in the real estate industry, underscores an important point. He argues that the crisis in affordable housing has changed the structure of households across Australia in unprecedented ways. The return of share houses and multi-generational homes is a symbolic victory of families banding together to address increased costs.
“If you go back, say, a couple of years, the rate of growth was about double what it is at the moment.” – Tim Lawless
With housing prices hitting all-time highs, the recent rate of increase is much more tempered than in years past. The rate of growth is now about 60% of what it was just two years ago. Lawless blames the slowdown on four main factors. Poor access to credit worsened by elevated household debt levels, lender wariness and reduced demand from weak population and migration growth contribute heavily.
Despite a recent uptick in home values, affordability constraints remain a significant barrier for many Australians looking to enter the market. Lawless explains that these constraints are preventing a much greater degree of growth, even with interest rates falling.
“It’s fair to say that there’s still a lot of constraints in housing markets, particularly affordability constraints, that are holding back a higher level of growth as we do see interest rates coming down.” – Tim Lawless
Regional Insights: Darwin Leads the Way
While other jurisdictions have yo-yoed in their performance, Darwin has been the rock star in our regions. Nonetheless, it did post a very strong month of 1.5 percent house price growth. Its median dwelling value of around $540,000 means it is comparatively more accessible than other capital cities. This affordability has attracted increased investment activity.
“I think the growth trend we’re seeing now…is really being fuelled by this renewed level of investment activity coming into the Darwin marketplace and just the sheer affordability.” – Tim Lawless
Only Darwin’s growth is extraordinary. Other capital cities such as Perth, Adelaide and Brisbane have all seen high value rises in the last five years. These markets are up over 70 percent and still leading the way up toward all-time highs.
National rents, as measured by Zillow, are up only 3.4 percent year-over-year, notes Zillow chief economist Lawless. He adds that rental rates remain elevated. They are not climbing as dramatically as in years past. This slower pace could open up more opportunities for renters to make the jump to homeownership, particularly at cheaper price points.
“Finally, a little bit of relief coming through for renters. Unfortunately, it doesn’t mean rents are going backwards — it just means that rents aren’t rising anywhere near as quickly as they have been over the past five years or so.” – Tim Lawless
The Broader Housing Landscape
When examining the bigger picture, it’s clear that most metro areas are dealing with a crisis of their own with housing values hitting near-record all-time highs. Bathroom tax According to lawless, property (or home values) are going up. This added cost erases most of the benefits that lower borrowing rates provide.
“The 2.4 percent rise in national dwelling values through the first half of the year equates to a dollar value increase in the median dwelling value of approximately $19,000, eroding much of the benefits of lower rates when it comes to borrowing capacity.” – Report noted
Creagh added that the rate of growth in household incomes has not matched the rate of increase of home prices. This discrepancy only adds to the confusion for those prospective buyers who, as a result, remain out of the market due to rising prices.
“We know growth in household incomes hasn’t kept up with that continued lift in home price growth we’ve seen in recent years.” – Eleanor Creagh
