Home prices turbocharged as deposit guarantee kicks in
Property prices rose the sharpest in more than two years after the government’s deposit guarantee scheme triggered demand for entry-level homes.
The first home purchase scheme, which was expanded at the beginning of October, appears to have accelerated the rise in house prices that has been occurring since the Central Bank began cutting interest rates in February.
House prices rose 1.1 per cent nationally in October – the fastest monthly growth rate since June 2023, according to real estate analytics firm Cotality’s latest home value index published on Monday.
While there is still a lack of data on uptake levels for the deposit guarantee scheme, Cotality research director Tim Lawless said the scheme was likely boosting demand.
“It’s a pretty clear acceleration that we’ve seen since February, the beginning of the rate cuts. But it’s fair to say that October looks like a slightly stronger step upward,” he told AAP.
“Without getting any numbers from House Australia or anything like that, you have to think that this will add a bit more demand to the market at a time when supply levels are already quite low.”
Mr Lawless said anecdotally the strongest growth had been experienced at the middle and lower end of the market, where suburbs or properties were below the price cap for the scheme.
The top quartile of the market showed the slowest growth in almost all capital cities.
The influx of buyers seeking to take advantage of the five per cent deposit scheme has resulted in only 47 per cent of suburbs with median house values falling below the eligibility threshold in October, down from 51 per cent two months earlier.
“It will probably be a first-in, best-dressed programme,” Mr Lawless said.
“More desirable suburbs where you can still find a home below price caps will become increasingly scarce.”
Perth was the fastest growing capital city with an increase of 1.9 per cent during the month, while Brisbane was up 1.8 per cent and Adelaide was up 1.4 per cent. Sydney and Melbourne grew by 0.7 percent and 0.9 percent respectively.
Mr Lawless said increased demand was pushing prices up, but an underlying lack of supply was still the biggest driver of price growth, with listings running about 18 per cent below average.
“I wouldn’t say demand is turning the lights out. This is actually a supply-driven rise and it doesn’t look like it’s going to change anytime soon,” he said.
Mr Lawless said state governments’ recent planning and zoning reforms were unlikely to shift the dial as builders still faced serious profitability constraints.
“If the government is serious about getting more supply into the market, it may need to start providing some form of subsidy to the industry, or start reducing development contributions or construction taxes, which could accelerate some of the supply that is not dependent on approvals.”
Mr Lawless said the underlying supply gap would continue to push values higher, but falling interest rate cut expectations, affordability constraints and declining consumer sentiment could cause price growth to peak earlier than previously anticipated.
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