Despite the Reserve Bank of Australia (RBA) putting rate cuts on ice – and even entertaining the possibility of a hike – Australia’s property market has shown surprising resilience and growth potential towards years end.
And yes, it’s a bit like watching your footy team scrape home despite missing the star forward. It appears that industry commentators think that the property market still has some gas left in the tank for another run yet.
Why the RBA might hold or raise rates
Inflation has been a bit of a party crasher, refusing to leave and making the RBA wary of handing out more rate cuts.
While market hopes were high for further reductions, reality has set in with rates parked above 4% and the RBA sticking to its guns until inflation is fully tamed.
This means mortgage repayments are staying steady and nervous buyers might pause for breath.
Could this spell the end for property?
Not really.
The supply and demand squeeze… The real story
It’s fair to say Australia’s housing supply is tighter than a packed elevator at peak hour. Approvals for new dwellings keep missing government targets by a wide margin, with only 160,000 new builds last financial year compared to a goal of 240,000.
Construction costs remain high, developers are cautious and state planning delays mean fewer homes coming on stream. Meanwhile, strong population growth and record immigration have only piled on the demand, creating a ‘rental hunger games’ in capital cities as tenants compete for a limited pool.
MORTGAGE RATES
A barrier… or a buffer?
While current rates remain elevated compared to the pandemic period, they are still notably lower than those seen in the early 2000s and late 2010s. Most lenders are offering fixed rates starting in the high 4% range, with variable rates beginning in the low 5% range, depending on the loan type.
Interest rates vary depending on whether your loan is:
- owner occupied or investment
- interest only or principal and interest
- fixed or variable
Loan size and LVR also play a significant role in the rate you qualify for.
For long term buyers and investors, rates remain manageable relative to historical standards. Higher rates have tempered speculative activity, encouraging cautious behaviour among first time buyers and investors alike.
However, well qualified borrowers can still benefit from strong rental yields and ongoing capital growth prospects. With property listings below historical averages and buyer demand outstripping supply, market fundamentals continue to support price stability. Investors are focusing on established suburbs and growth corridors, further tightening stock availability and bolstering prices.
CONSUMER SENTIMENT
More optimistic than you might think
Despite the RBA’s cautious stance, optimism has returned. The Westpac Index of House Price Expectations recently hit its highest level since 2013, spurred on by the belief that, even with rates steady, the worst of the inflationary period is behind us.
Borrowing capacity is creeping up again, boosting confidence and fuelling activity in the market, especially among upsizers and investors.
Why the property market’s growth run isn’t over
Here’s the kicker – the market’s resilience isn’t just about interest rates. Australia’s property sector is bolstered by:
- chronic undersupply versus overwhelming demand
- tight rental markets underpinning yields and supporting asset values
- policy support for first home buyers, driving participation and competition
- a steady stream of immigrants and high population growth
- robust employment figures and steady wage growth giving buyers confidence
Unless rates unexpectedly rocket north or a glut of new supply appears overnight (don’t hold your breath), conditions remain positive for continued growth.
Sure, the pace might be slower, however the fundamentals still favour long term capital appreciation, especially in high demand cities and popular regional areas.
FINAL THOUGHT…
A market built for the patient (and savvy)
Is there risk? Absolutely.
A sudden policy pivot or economic shock could change things fast. But for now, long term investors and owner occupiers willing to play the waiting game are likely to find plenty to smile about.
The current market?
It rewards preparedness, patience and a dash of true blue optimism.
So, if you’re considering a move, don’t let talk of rate rises keep you stuck to the sidelines.
Australia’s property market, like a stubborn old gum tree, still has strong roots – and apparently from leading commentators, more growth to come.