According to PropTrack's recent market outlook report, Australian house prices are expected to rise by 3% to 6% in the next fiscal year, exceeding the anticipated inflation rate.
The report highlights that from January to May this year, Australian house prices have already increased by 2.7%. Typically, rising interest rates would dampen house price growth, but PropTrack's analysis reveals a resilient market, which has puzzled some observers.
Cameron Kusher, PropTrack's Director of Economic Research and the report's author, noted that despite higher interest rates, decreased borrowing capacity, and an increase in available properties, the demand for home purchases remains robust. This strong demand has driven property prices beyond expectations.
Similar findings were reported by CoreLogic and AMP. Despite economic challenges, the demand for real estate continues to outpace supply, supporting the view that house prices will keep rising.
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PropTrack estimates a 3% to 6% increase in house prices over the next year. This would represent the largest annual increase in the Victorian capital's housing market since multiple interest rate hikes began in May 2022.
For Melbourne's median house price of AUD 921,000, this forecast translates to a potential increase of AUD 27,630 to AUD 55,260.
Despite Melbourne's modest 0.8% price increase last year, lower compared to other state capitals, Kusher believes that Melbourne's broad housing options and last year's price stability make it more attractive to buyers.
Kusher stated, "While Victoria still sees population outflow to other states, the affordability of housing might encourage more people to stay in the state."
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Even with the anticipated price rise in Melbourne, there are positive factors for buyers.
Firstly, upcoming tax cuts are expected to enhance borrowing capacity. However, Kusher pointed out that while tax cuts may push house prices higher, their impact may take time to materialize.
Secondly, the Victorian government has noted a significant number of investors selling properties, contributing to increased rental prices and a rise in available housing stock.
These factors are generally favorable for buyers, but the property market remains unpredictable, and specific impacts will need further observation in the upcoming fiscal year.
Meanwhile, Sydney's price increase is expected to be more moderate. Despite its already high prices, even a slight increase can have a significant impact.
According to a report by KPMG, Sydney house prices are projected to rise by an average of 4.9% by the end of 2024 and an additional 5.3% by the end of 2025.
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The anticipated price increase in Sydney is attributed to high immigration rates and upcoming tax cuts.
Kusher mentioned that tax cuts are expected to enhance borrowing capacity, equating to "two rate cuts."
He also highlighted that the construction industry is facing labor shortages and a tight supply of skilled workers, creating challenges for new home developments and keeping demand high.
Beyond these factors, the possibility of future interest rate cuts remains the biggest uncertainty affecting property prices.
While a rate cut is widely anticipated, the timing and magnitude remain unclear. If the cuts are less than expected, it could impact buyers' purchasing power and overall market demand.
The latest consumer price index, released yesterday, showed an inflation rate of 4% for May, up from 3.4% in February.
Steve Mickenbecker, Executive Director at Canstar, noted that the high inflation rate increases the likelihood of further interest rate hikes.
