The big surprise in the Australian housing market last year was how quickly home prices fell with RBA rate hikes. But the big surprise this year is how they rebounded when most including myself were looking for further falls. October CoreLogic data showed another 0.9% rise in national home prices, leaving them just 0.5% below their April 2022 record.
After the initial rebound earlier this year we came to the conclusion that prices had bottomed and would rise another 5% next year. This remains our view, but the outlook for the property market is more uncertain than normal as the property market is caught between the extremes of a supply shortfall and the negative impact of higher interest rates – both of which are still playing out and are getting more extreme.
Supply shortfall still dominating for now
The rebound in prices reflects a far worse than expected shortfall of supply relative to underlying demand for homes as immigration rebounded driving the fastest population growth rate since the 1950s at the same time that the supply of new dwellings slowed. This accentuated already tight rental markets, forcing rents up & driving renters to consider buying. So, demand improved but supply remains weak with total listings below normal. Talk of rising prices and shortages further boosted demand from less interest rate sensitive buyers. Expectations that rates were at or close to the top have also helped. Looking at the key elements of this:
• Net immigration looks to have been around 500,000 in 2022-23, more than double the 235,000 forecast in last October’s budget. And monthly arrivals suggest it’s continuing to surge this financial year.