High cash rates no barrier to housing boom, data shows
The Federal Reserve’s three interest rate cuts last year were widely credited with accelerating growth in property values, but historical data shows the sharpest price rises are not always driven by falling borrowing costs.
Last year’s 8.6 percent increase in home values was the 11th strongest calendar year in four decades, according to data compiled by analytics firm Cotality.
Of the highest five-year growth in the past 40 years, only 24.5 percent growth in 2021 occurred as interest rates were below current levels.
Interest rates were around 15 percent in 1988, the year when growth was strongest, when values rose more than 31 percent.
“Sometimes home values go up when you least expect it,” said Cotality Research Director Tim Lawless.
“These standout years remind us that housing markets are affected by much more than interest rates. Fiscal stimulus, credit availability, immigration trends and economic shocks all play a role in shaping outcomes.”
During this period, house prices fell in just six years.
The biggest decline occurred in 2008, when the Global Financial Crisis shook the housing market, but rapid easing of monetary policy caused values to rebound by more than 10 percent the following year.
Imbalance between supply and demand is the main cause of price increase; The Housing Industry Association estimates Australia’s housing deficit is close to two million homes.
HIA Senior Economist Tom Devitt said the increase in construction approvals driven by a sharp increase in apartment projects in November should translate into higher levels of residential construction in 2026.
“After almost a decade of under-construction, the foundations are finally being laid for a broader housing recovery in 2026,” he said.
On the demand side, incoming migration levels are also slowly returning to pre-COVID levels.
Net overseas migration fell to 306,000 in the last financial year from a peak of 556,000 in September 2023 and is expected to fall further in the coming years.
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