Our friend Eliza Owen, head of research at CoreLogic, has been making her rounds informing folks about the Australian housing market. She reflects that these recent interest rate cuts may increase upward pressure on property prices. She warned that persistent affordability constraints could cap the increase at close to 10 percent in the next year. Owen’s analysis aligns well with the government’s announcement to rollout an expanded 5 percent deposit guarantee program next year. Such a move would fundamentally change our housing landscape.
Increased interest rates Owen said he believes lower interest rates will encourage more first-time home buyers to make a purchase this year. He warned that anyone who wants to buy them will face huge obstacles. On average, median house value in combined capital cities has exceeded $1 million for the first time. This demand presents an overwhelming obstacle for countless families struggling to find affordable units. She warned that a tsunami of buyers is likely to hit next year. The economic conditions that most would-be buyers will contend with will limit how far prices can rise.
Interest Rate Cuts and Market Dynamics
As Eliza Owen pointed out, the recent cuts in interest rates are having an outsized effect on buyer demand. She clarified that demand-side policies are pushing more Americans into homeownership. At the same time, the lack of supply is pushing prices up even further.
“At the end of the day, where you’ve got demand side policies encouraging more people to buy and giving great access to housing finance while your supply is limited, it is going to push prices higher.” – Eliza Owen
The impact of these rate reductions will be complex. Owen now expects big banks to follow suit and make at least two more rate cuts this year. Consequently, she expects rising property values and sales activity market-wide.
Owen was particularly interested in the growth convergence that is becoming clear across capital cities. Meanwhile, Brisbane and Adelaide prospered on the back of booming growth over the past year. Now, they’re looking at a real slowdown in their quarterly growth rates. First, the short term— the quarterly growth rate is still between 1 and 1.5 percent. At the same time, the annual increases in the national index have decelerated to 3.3 percent.
Rental Market Trends
The rental market also attests to large pandemic impacts, with national rental vacancy rates at or below 2 percent in all capital cities. To Owen’s surprise, the rental market increased only 3-3.5 percent in the last year. This represents a significant growth slowdown relative to the last five- and ten-year periods.
“And you’ve now potentially got more share houses and multi-family houses forming in response to unaffordable rent costs and a slowdown in net overseas migration.” – Eliza Owen
Demand for rental properties continues to outpace supply. Owen warned that higher unemployment and less strong wage growth would hold back the rental and dwelling price inflation. This perfect storm makes it a difficult time for both buyers and renters.
The Future of Australian Housing Prices
Eliza Owen on the prospect of rising prices She estimates we’ll have an increase of 6 to 10 percent by the beginning of next year, but it’ll be on the low end of that range. She reiterated that even with lower interest rates, many households will find their affordable purchase price considerably lower than current property values.
“Yes you will get a boost to borrowing capacity from lower interest rates, but that still puts an affordable purchase price for many households much lower than where property prices actually are especially when you consider the median house value in the combined capitals is now over $1,000,000.” – Eliza Owen
Louis Christopher, another industry expert, was equally damning as Owen on buyer demand and market dynamics. He noted a number of factors are contributing to increased buyer demand. These dynamics are the end of the federal election and the return of high population growth rates.
“Other factors contributing to this present increase in buyer demand include the end of the federal election and ongoing increases in underlying demand for accommodation given our ongoing surging population growth rates.” – Louis Christopher
