Australia home prices gain for 12th month, while Melbourne falls

AUSTRALIA’S housing market started the new year on a positive note, recording its 12th straight monthly price increase even as the nation’s two biggest cities struggled amid deteriorating affordability.

Bellwether Sydney edged up 0.2 per cent while prices in Melbourne fell, resulting in an overall increase of 0.4 per cent for Australia’s major cities, property consultancy CoreLogic said in a report on Thursday (Feb 1). The weakness in the two biggest cities was offset by mining powerhouse Perth as well as Adelaide, which advanced 1.6 per cent and 1.1 per cent, respectively.

“Despite ongoing cost of living pressures, high interest rates, low consumer sentiment and affordability constraints, homes are still selling,” said Tim Lawless, research director at CoreLogic. “Housing demand has been buoyed by high migration, but also tight rental markets that have probably incentivised renters to transition towards home ownership if they can afford to do so.”

Australia’s property market surprisingly recovered last year despite the central bank’s 4.25 percentage points of policy tightening since May 2022. CoreLogic’s national home value index has climbed 31.6 per cent since the onset of Covid-19, with Sydney advancing 24.2 per cent during that period.

The Reserve Bank of Australia (RBA), which meets next week for its first policy decision of the year, is likely to leave rates at a 12-year high of 4.35 per cent. The central bank has maintained a hawkish tone amid resilience in the housing and job markets, though Wednesday’s slower inflation will give policymakers more confidence.

Lawless said macroprudential settings will likely be a key determinant of housing outcomes this year, pointing to a 3-percentage point buffer applied to a borrower’s home loan servicing assessments as “one of the biggest hurdles” to demand.

SEE ALSO

Australian inflation cools further, easing RBA rate pressure

Australia’s Prime Minister plans changes to tax cuts despite election pledge

Australia’s December business conditions ease, price pressures cool

“Potentially we could see APRA adjust the buffer back to its previous setting of 2.5 per cent as interest rates fall, however, there is no guarantee this will be the case,” he said. Leaving the serviceability buffer unchanged “could provide APRA with some assurance of reduced credit risk”.

Financial markets and economists expect the RBA will embark on an easing cycle in the second half of this year.

Bloomberg Economics anticipates price gains will peter out, particularly in Sydney, where housing is becoming increasingly unaffordable with the median home value A$1.12 million (S$985,796). BLOOMBERG