House prices in Sydney — a bellwether for the Australian real estate market — may have found a floor as a home shortage and the central bank’s rate-hike pause stem declines, according to a report by Bloomberg Intelligence.
(Bloomberg) — House prices in Sydney — a bellwether for the Australian real estate market — may have found a floor as a home shortage and the central bank’s rate-hike pause stem declines, according to a report by Bloomberg Intelligence.
Housing supply remains tight due to increased population growth, declining new home and apartment completions, as well as reduced listing volumes as sellers hold out until the market stabilizes, BI analysts Mohsen Crofts and Jack Baxter said in the report. Still, they said Australia’s property recovery is likely to be muted in 2023 as affordability constraints continue.
Sydney posted the biggest monthly price gain at 1.4% in March, followed by Melbourne and Perth, resulting in a 0.8% increase for Australia’s major cities, data from property consultancy CoreLogic Inc. showed earlier this month.
Signs that Sydney prices may have bottomed will be welcomed by the Reserve Bank of Australia, which is trying to engineer a soft landing while reining in inflation. The RBA’s move earlier this month to pause tightening after 10 consecutive hikes further supports the real estate market.
Financial market pricing implies the RBA is all but done with rate hikes, while economists expect at least one more increase to 3.85% in May.
The median home value rose across all capital cities in March as buyer demand returned at depressed price levels, BI said. Pent-up demand is expected to support home values across Australia, particularly in 2024, it said.
High-value houses in Sydney rose the fastest in March at 1.9% month-on-month growth, followed by 1% for medium-value properties and 0.6% at the low end, James McIntyre, an economist at Bloomberg Economics, said.
Rental Squeeze
Australian capital cities need residential construction activity to remain high to ease pressure on the critically tight rental market, BI said, adding that the dynamic of low building approvals due to high mortgage costs and weakening developer confidence was likely to continue until 2024.
“Capital city rents will keep rising through 2023 as vacancy rates approach 1% due to population growth and supply constraints,” the report said. “Apartments face the tightest squeeze from an increasing population and will likely see rent growth outperform that of detached houses.”
Meanwhile, BI said variable mortgage rates may have peaked at 5.5% in March, assuming the RBA keeps rates on hold. Increased competition for home lending could spell persistent pressure to discount, it said.
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