Australian Home Price Growth Slows as Sydney, Melbourne Cool
Australia’s housing market experienced a slowdown in November due to increased interest rates and declining affordability, causing buyers to step back from the market. According to a report by property consultancy CoreLogic Inc, Sydney’s home prices rose by 0.3%, while Melbourne experienced a slight decline of 0.1%. This resulted in an overall price gain of 0.6% in Australia’s major cities. However, there was divergence in other markets, with Perth and Brisbane, driven by mining, experiencing jumps of 1.9% and 1.3%, respectively.
CoreLogic’s Tim Lawless commented, The housing market is moving through a new inflection point, with the rate of growth in home values becoming more diverse. Lawless highlighted several downside risk factors, including the expectation of higher interest rates for a longer period, worsening affordability challenges, and deeply pessimistic consumer sentiment.
The Reserve Bank of Australia (RBA) had recently increased borrowing costs to 4.35%, marking a 12-year high, after a four-month pause. However, it is anticipated that the RBA will maintain the current interest rates in its upcoming meeting due to the ongoing strength of the economy, labor market, and sticky inflation.
Despite the rate hikes, Australia’s property market has shown resilience, fueled by a lack of new housing supply and a surge in population growth. In November, the national Home Value Index reached a new record, with housing values increasing by 8.3% over the past 10 months. This recovery erased previous declines, resulting in a clear V-shaped trajectory.
George Tharenou, economist at UBS Group AG, noted, The lack of sales supply is keeping the housing market relatively tight, proving a significant offset to the RBA’s rate hikes, which are reducing borrowing capacity and demand. Tharenou predicted a moderation in price growth to an annual rate of 5% or less in 2024, compared to the current 8% rate.
Looking ahead, the cooling of the Australian housing market suggests a gloomier outlook. The increasing interest rates, worsening affordability, and diverse growth in home values indicate a shifting landscape. As the market enters a new phase, buyers and sellers will need to navigate these factors to make informed decisions.
In conclusion, as Australia’s property market faces headwinds, Sydney and Melbourne experience a slowdown in home-price growth. The RBA’s interest rate increases, along with affordability challenges, contribute to buyers taking a step back. Despite this, mining-powered cities like Perth and Brisbane continue to see price gains. The housing market’s resilience, fueled by limited housing stock and population growth, has resulted in a record high Home Value Index. However, with downside risk factors becoming more pronounced, including consumer sentiment and borrowing capacity, a moderation in price growth is predicted for the coming years.
