Australia’s housing market is about to sail past its previous record high despite 12 interest rates hikes by the central bank in 18 months.
The housing market experienced a steady downturn throughout much of 2022 as interest rates started going up.
But since January, home prices have recovered strongly, to the surprise of the Reserve Bank governor and many others.
However, another cash rate lift, widely forecast for November 7, and an injection of new properties for sale could still cool the housing market.
The home value index released by real estate data firm CoreLogic is now only half a per cent below its high reached last year, with several markets – including Brisbane, Adelaide and Perth – already finding new peaks.
Nationally, the index lifted 0.9 per cent through October, up from 0.7 per cent in September.
Darwin was the only capital to record a monthly decline in October, with combined regions also growing strongly.
Australia’s property market continues to be highly competitive despite interest rates hikes making mortgages wildly expensive
RBA Governor Michelle Bullock (pictured) said she would not hesitate to raise interest rates yet again as inflation remains high
National home prices have already breached their former record high based on a separate index put together by PropTrack.
Yet CoreLogic research director Tim Lawless said the recovery in national home values was slowing down when viewed quarter to quarter.
Mr Lawless said more stock was coming on the market, boosting choice for buyers. Stretched affordability was also keeping a lid on growth.
A limited supply of advertised homes had been playing a key part in the rebound but had already started picking up through winter – unusual for that time of year – with the seasonal peak still to come in late November.
Paired with another interest rate rise, which is now widely expected to beat uncomfortably persistent inflation, further heat may come out of home price growth.
‘This will be a real test for the market,’ Mr Lawless said.
Another interest rate hike will make it harder to access credit.
An owner occupier would be assessed to repay their loan at almost 9.5 per cent if rates lift a further 25 basis points, factoring in the three percentage point serviceability buffer.
‘Whichever way you look at high inflation and interest rates, it means less buying demand in the marketplace.’
Another interest rate hike is likely on Melbourne Cup Day making homes further out of reach for young buyers
The rapidly recovering property market is also a concern for the RBA, at the margins, as households can be tempted to spend more when they perceive a lift in their wealth.
The pace and scale of the housing market recovery has surprised RBA governor Michele Bullock.
She chalked the rebound up to a number of factors, including the rising cost of construction nudging more people to buy an existing home rather than build one.