As the calendar flipped to the end of August, the Australian housing market reached a significant milestone, with its combined value hopping back to a resplendent $10 trillion mark, a scene not witnessed since the brisk days of June 2022. This financial feat has been churned out from a brew of climbing home values, settling at a median of $732,886, and an augmentation in housing stock that now cradles around 11 million properties within its folds.
The narrative of resurgence in home values started being inked in March this year, and the script has seen a 4.9% rise through to the closure of August. This upswing has erased approximately half of the gloomy downturn witnessed between April 2022 and February 2023, where the national home values took a -9.1% tumble from the peak to the trough. Fast forward to now, and we’re staring at a figure that’s just -4.6% shy of the April 2022 pinnacle.
Interestingly, this upward trail blazed by housing values ambles against the backdrop of a nagging cost of living crisis, a soggy consumer sentiment, and the cash rate seeing a quartet of hikes already in this year, marking the swiftest rate hiking cycle on record. It’s a scenario that nudges the curious mind to ask, how did we get here?
A triad of factors surfaces to the fore to shed light on this economic enigma:
The international shuffle of feet: The demand for housing has felt the warmth from a blend of returning overseas souls, coupled with a tapering off in overseas departures. The previous year saw a -25% dip in departures from the land Down Under compared to the pre-COVID average, while arrivals nudged slightly above the 2019 figures. This, mingling with a lingering low average number of persons per dwelling in the capital cities, has stoked the flames of housing demand, fuelling a fiercer competition for the available properties, especially with rental vacancy rates clinging to record lows.
Digging into the financial cookie jar: A likely scenario is the dive into savings, equity or profits accrued from previous home ownership, steering them towards new property purchases rather than tiptoeing towards more borrowing. This narrative dovetails with the ABS’s reportage of a dip in lending value and volume during June and July. Yet, the sustainability of this approach hangs in the balance as household saving ratio, which is the barometer of net saving to net disposable income, slumped to 3.7% amid soaring inflation and debt costs, a far cry from the COVID-induced zenith of 23.6%.
Supply playing hard to get: The market hasn’t been flooded with listings, even though new ones have started to make an appearance with the onset of the spring selling season. As of the first four weeks ending in September, the total listings across the nation were nestled around 136,000, a figure that’s -23.4% lower than the previous five-year average.
The crystal ball for the housing market’s trajectory remains somewhat fogged. Despite the consistent rise in housing values over the preceding six months, a cocktail of factors including a potential uptick in unemployment and snug credit conditions, stirred with economic performance set to unwind, could cool off the recent recovery trend as the year folds. CoreLogic forecasts that a sturdier recovery in housing values might remain on a leash until the credit conditions decide to slacken their tight grip. The tale of Australia’s housing market continues to be a riveting read as it navigates through the economic quicksands with a blend of resilience and caution.
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