Despite the rate-hiking cycle that began in May 2022, the Australian housing market has demonstrated remarkable resilience. Housing values have not only recovered from an initial downturn but have also risen to be 4.6% higher than in May 2022 by the end of 2023.

Factors Driving the Trend

Several factors are driving this trend:

  • Low Supply Relative to Demand: Tight labour market conditions and pandemic-induced savings have broadly underpinned mortgage serviceability, mitigating a need to sell as rates have increased.
  • Construction Sector Constraints: The construction sector remains squeezed, unable to deliver a large backlog of dwellings.
  • Population Growth: Strong population growth has increased demand for housing, both for purchase and rent.

In the June quarter, there were around 127,000 homes purchased, but only about 125,000 new listings added to the market for sale. As long as there are more people willing to purchase a home than sell, prices should theoretically continue to rise.

The Buyer Profile

The composition of buyers may also be propping up purchases, with higher deposit sizes indicating the current buyer profile may be less debt-dependent than when interest rates were at record lows.

The Role of Variable Rate Mortgages

Other demand-side factors influencing housing purchases could be the predominance of variable rate mortgages in Australia. Buyers may be pricing in a future reduction in the cash rate to their purchasing decisions, with the expectation that they are buying in around the peak of the rate cycle, and their mortgage rates will trend lower over time.

Disclaimer: This article is for informational purposes only and should not be considered financial advice.