Australia’s house prices rise sharply in May, driven by Sydney

AUSTRALIA’S house prices climbed for a third straight month in May, suggesting further interest-rate increases may be needed to cool resurgent demand that threatens to exacerbate inflationary pressures in the economy.

Prices in bellwether Sydney jumped 1.8 per cent, the city’s biggest increase since September 2021, data from property consultancy CoreLogic showed on Wednesday (May 31). Brisbane gained 1.4 per cent and Melbourne and Adelaide rose 0.9 per cent apiece, resulting in a 1.4 per cent advance for the nation’s major cities as a whole. 

The surprisingly rapid rebound comes after data on Wednesday showed inflation accelerated at a faster-than-expected 6.8 per cent in April, bolstering the case for further rate hikes. The Reserve Bank is worried that a renewed rise in property prices will drive a wealth effect and encourage more household spending, further fuelling consumer prices that it’s trying to tamp down.

The central bank’s forecasts show inflation only returning to the top of its 2-3 per cent target in mid-2025 and policy makers worry that if it takes longer to reach that level then inflation expectations may de-anchor.

Money markets, which were earlier signalling the RBA’s tightening cycle is all but done, are now almost fully pricing in a quarter-percentage-point hike to 4.1 per cent in August. 

Last month, the central bank unexpectedly raised the key rate to an 11-year high of 3.85 per cent as the board worried about the risk of upside surprises to inflation from a tight labour market and a rebounding property market. 

Strong population growth in Australia has boosted demand for housing while a supply shortage and persistently low levels of advertised listings are also fueling prices.

“With such a short supply of available housing stock, buyers are becoming more competitive and there’s an element of Fomo creeping into the market,” said Tim Lawless, research director at CoreLogic, referring to fear of missing out when prices rise. 

He highlighted that auction clearance rates have trended higher, holding at 70 per cent or higher over the past three weeks.

SEE ALSO

Australia’s building approvals slump to lowest level in 11 years

The number of homes advertised for sale fell in May, Lawless said, with the flow of fresh listings 13.1 per cent below the previous five-year average across the nation’s major cities. BLOOMBERG