Australia’s Housing Market Bouncing Back

Home values across the nation started bouncing back in March this year, and by the end of August, they had risen by a solid 4.9%. This recovery has managed to wipe out about half of the previous drop that occurred between April 2022 and February 2023 when home values took a -9.1% dip. Right now, we’re only looking at a -4.6% difference from the peak in April 2022.

 

This upward trend in values might seem surprising, given the current situation with soaring living costs, low consumer confidence, and four interest rate hikes this year, which is the fastest rate hike cycle on record. So, what’s going on here?

 

Well, there are a couple of factors that could shed some light on why home values are still on the rise, even when the conditions don’t seem too favorable:

 

Migration Matters: One big factor is the net overseas migration. More people are returning to Australia from abroad, and fewer are leaving. Last year, departures were down by about -25% compared to the pre-COVID average, and arrivals were slightly higher than in 2019. Combined with the fact that there aren’t too many people per house in the big cities, this is driving up the demand for housing. It might also explain why the competition for available properties is fierce, especially since rental vacancy rates are still quite low.

 

Dipping into Savings and Equity: Some folks might be using their savings, profits, or equity from previous home ownership for property purchases instead of taking on more debt. This could be a reason behind the recent rise in home values, especially since lending numbers have been on a decline, according to the ABS. However, it’s uncertain how long households can rely on these savings to keep up their purchases. National accounts data from the ABS shows that household savings have dropped to 3.7% due to inflation and debt costs, down from the COVID-era high of 23.6%.

 

Limited Supply: The total number of available listings is still quite low, even though new listings are starting to pick up for the spring selling season. As of the four weeks ending September 3rd, there were around 136,000 listings across Australia, which is -23.4% less than the five-year average.

 

But can this recovery keep going?

 

Well, despite the consistent rise in home values over the past six months, the housing market’s future is far from clear. While there’s a growing expectation that the Reserve Bank of Australia is done raising the cash rate, borrowing is still restricted due to relatively high serviceability requirements. Data from APRA up to June showed that the average home loan assessment rate was just below 9%, and ABS data on housing lending reveals that mortgage lending has fallen in three out of the last four months.

 

The economic landscape is also expected to change, and while that’s good news for inflation and interest rates, rising unemployment could pose a risk to mortgage affordability. It is anticipated that the heat in the recent recovery trend might cool off towards the end of this year. A more robust recovery in home values might be on hold until credit conditions start to loosen up.