Australian house prices snapped 10 months of declines in March, led by a surge in the bellwether Sydney market in a positive sign for the economy after the central bank’s almost yearlong policy tightening cycle.
(Bloomberg) — Australian house prices snapped 10 months of declines in March, led by a surge in the bellwether Sydney market in a positive sign for the economy after the central bank’s almost yearlong policy tightening cycle.
Prices in Sydney jumped 1.4%, followed by Melbourne and Perth, resulting in a 0.8% increase for Australia’s major cities, data from property consultancy CoreLogic Inc. showed Monday. Still, Sydney property values have fallen 12.1% over the past year.
“The U-turn in home prices after nine months of large declines has been surprising,” said Diana Mousina, senior economist at AMP Capital Markets. The rebound “reflects buyers stepping back into the market given the fall in prices, low listings, some government support, the return of immigrants which is boosting underlying demand and ultra-tight rental markets.”
Signs of stabilization in the housing market will be welcomed by the nation’s central bank as it tries to engineer a soft landing in the economy while bringing down inflation. The Reserve Bank is expected to pause tightening on Tuesday after 10 consecutive hikes, a move that could further support housing.
March’s rebound in prices came desite the RBA delivering its most aggressive tightening cycle since 1989, driving up borrowing costs by 3.5 percentage points since May 2022 to tamp down consumer prices.
What Bloomberg Economics Says…
“March’s rise in house prices won’t stop the RBA pausing rates in April. A supply drought in Sydney and Melbourne was the key driver behind the price increase — and it won’t last.”
— James McIntyre, economist.
To read the full note, click here.
Advertised supply has been below average since September last year while rental markets remain “extremely tight,” said Tim Lawless, research director at CoreLogic.
“It’s likely we’re seeing some spillover from renting into purchasing,” Lawless said. “Similarly, with net overseas migration at record levels and rising, there is a chance more permanent or long term migrants who can afford to, will skip the rental phase and fast track a home purchase.”
A separate government report validated that view, showing net additions of apartments and dwellings such as town houses over the five years to 2026-27 are projected to be around 40% below levels seen in the late 2010s.
“The rapid return of population growth is coinciding with the fastest increases in interest rates for several decades, undermining residential construction,” according to Australia’s National Housing Finance and Investment Corp.
Separate data on Monday showed a continued downtrend in building approvals, which slumped 31.1% in February from a year earlier. Housing finance is also declining, with the total value of new loan commitments plunging 33% from elevated levels in January 2022.
While the supply shortfall is placing upward pressure on home prices, economists say a key factor that will weigh on the market in the longer term is expectations that borrowing costs will remain elevated until at least late 2024. This is because inflation is likely to prove sticky, they say.
“We might see a pretty sustained period of higher rates before we see cuts,” said Peng Yew Wong, a senior lecturer at RMIT University in Melbourne. “That means borrowers will need to pay higher repayments.”
“So that is a factor that will weigh on the market despite the positive from population growth and housing shortage.”
(Adds economists’ comments, building approvals data, chart.)
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