Homebuyers at square one as price hikes eat rate cuts
Rising house prices are negating the benefits of three rate cuts for new buyers, new data reveals.
House values across Australia rose by one per cent in November, with the average house value now worth $888,941, property analysis firm Cotality reported on Monday.
This follows the striking result that prices increased by 1.1 percent in October and 0.8 percent in September.
But Cotality research director Tim Lawless said the slightly falling November figure could indicate a change in momentum.
“It looks like a very mixed outcome really, a two-speed market is starting to re-emerge,” Cotality research director Tim Lawless said.
On a monthly basis, growth in Sydney slowed from 0.7 per cent to 0.5 per cent, while Melbourne fell from 0.9 per cent in October to 0.3 per cent in November.
Meanwhile, medium-sized capitals recovered.
Brisbane became the second Australian city to break the $1 million median house price barrier, up 1.9 per cent; Adelaide rose by the same amount and Perth rose 2.4 per cent.
Price growth in Canberra, Hobart and Darwin also increased by 1 per cent, 1.2 per cent and 1.9 per cent respectively.
The increases in house prices are occurring simultaneously with the resurgence of inflation, dashing hopes that the Central Bank will reduce interest rates again.
Economists and bond traders are increasingly predicting that the central bank may even raise interest rates next year.
“You’d have to argue that Sydney’s affordability and serviceability challenges will come to the fore here, possibly creating a natural ceiling on how high prices can get,” Mr Lawless said.
“This may be the first sign that markets are starting to respond to the renewed recognition that interest rates will not fall further for at least the next six months.”
The effect of the 75 basis point cash rate cut since February has already begun to wear off.
Mr Lawless calculated that the cuts increased the borrowing capacity of an average-income household by $55,000, but home values have increased by $60,000 since then.
The outlook for tenants continues to be that affordability is increasingly deteriorating.
Rents are rising in all capital cities; the national rent index has increased by five percent in the last 12 months; This is the highest annual growth rate in a year.
“This is absolutely bad news for tenants and comes at a time when vacancy rates are near record lows around 1.5 per cent,” Mr Lawless said.
Australia faces an ongoing supply gap and feasibility restrictions on developers are hindering government policies to increase social and affordable housing stocks and build-to-rent stocks.
Demand is expected to soften somewhat as immigration levels normalize and tenants form increasingly larger households or stay in the family home longer to adjust to higher rents.
