According to the housing value index compiled by data group CoreLogic, house prices rose by 0.6% in March, consistent with the increase in February. The median house price reached AUD 772,730, a rise of over 10% since the low point in January 2023.

Another index operated by PropTrack also yielded similar results. National house prices rose by 0.34% in March, up 6.79% from the same period last year, also setting a historic high.

Tim Lawless, Research Director at CoreLogic, stated, "Despite pressures from high interest rates, high living costs, affordability challenges, and low consumer sentiment, demand has shown considerable resilience."

With population growth reaching its fastest pace since the 1950s and new housing approvals declining, the imbalance between demand and supply has intensified.

Except for Melbourne, all state capitals saw increases in house prices in the March quarter. Sydney remains the most expensive city, while Perth, Adelaide, and Brisbane, after experiencing sharp increases over the past year, also reached historic highs.

Since May 2022, the Reserve Bank of Australia has raised interest rates 13 times, leading to significant increases in mortgage payments, especially for households borrowing at the record-low cash rate of 0.1% during the pandemic.

However, mortgage arrears have only slightly risen and remain below pre-pandemic levels. If the unemployment rate stays near half-century lows and interest rates begin to fall later this year, the pace of house price growth looks set to at least match the current rate.

It is noteworthy that sales volumes rose by 9.5% compared to the low levels of the March quarter in 2023. CoreLogic indicates that transaction volumes are about 3.7% higher than the ten-year average for the same period.

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However, one sign affecting affordability is the demand shifting towards the cheaper end of the market. During January to March, prices of lower-end homes rose by 3.1%, while the top 25% of homes in the market increased by only 0.7%.

In the past, higher-priced homes tended to rise first in sluggish markets. However, since the September quarter last year, the growth rate of lower-priced homes has been faster than the higher-priced segment.

Lawless remarked, "With pressure from living costs and higher interest rates, affordability assessments for loans have become more challenging. Purchasing a mid-priced home in such a market is quite difficult if your household income is at the median level."

Furthermore, the trend of rising prices for lower-priced homes may also reflect some tenants' despair in avoiding continually rising rental levels and the impact of low vacancy rates across the country. First-time buyers account for a higher proportion in the market, comprising about 28% of owner-occupier demand.

In addition to rising house prices, rents are also increasing. In the March quarter, the national rental index rose by 2.8%, the fastest growth in nearly two years. Apartment rents increased by 2.9%, slightly higher than the 2.7% growth rate for houses.

Overall rental yields are also rising, which may attract more investors back into the real estate market. For instance, the average rental yield in Melbourne reached 3.57% in March, the highest level since March 2015.

However, the real estate industry still faces some headwinds. Lawless stated that affordability issues remain a drag, which could worsen if the unemployment rate rises faster than current economists' expectations.

The Reserve Bank of Australia may be reluctant to lower interest rates as homeowners may feel wealthier due to asset appreciation, potentially stimulating consumer demand.

"Regulators are least likely to want to see another surge in house prices. If house prices start to rise significantly, the policy response will be an interesting question, as there are few means of adjustment," Lawless concluded.