Australian housing prices snap declines as Sydney market surges

SYDNEY – Australian house prices snapped 10 months of declines in March, led by a surge in the bellwether Sydney market, in a positive sign for the economy after

the central bank’s almost year-long policy tightening cycle.

Prices in Sydney jumped 1.4 per cent, followed by Melbourne and Perth, resulting in a 0.8 per cent increase for Australia’s major cities, data from property consultancy CoreLogic showed on Monday. Still, property values in Sydney have fallen 12.1 per cent over the past year.

“The U-turn in home prices after nine months of large declines has been surprising,” said Ms Diana Mousina, senior economist at AMP Capital Markets. The rebound “reflects buyers stepping back into the market given the fall in prices, low listings, some government support, the return of immigrants, which is boosting underlying demand, and ultra-tight rental markets”.

Signs of stabilisation in the housing market will be welcomed by the nation’s central bank as it tries to engineer a soft landing in the economy while bringing down inflation. The Reserve Bank of Australia (RBA) is expected to pause tightening on Tuesday after 10 consecutive hikes, a move that could further support housing.

March’s rebound in prices came desite the RBA delivering its most aggressive tightening cycle since 1989, driving up borrowing costs by 3.5 percentage points since May 2022 to tamp down consumer prices.

Advertised supply has been below average since September last year, while rental markets remain “extremely tight”, said Mr Tim Lawless, research director at CoreLogic.

“It is likely we are seeing some spillover from renting into purchasing,” Mr Lawless said. “Similarly, with net overseas migration at record levels and rising, there is a chance more permanent or long-term migrants who can afford to will skip the rental phase and fast-track a home purchase.”

A separate government report validated that view, showing that net additions of apartments and dwellings such as town houses over the five years to 2026/2027 are projected to be around 40 per cent below levels seen in the late 2010s.

“The rapid return of population growth is coinciding with the fastest increases in interest rates for several decades, undermining residential construction,” according to Australia’s National Housing Finance and Investment Corp.

Separate data on Monday showed a continued downtrend in building approvals, which slumped 31.1 per cent in February from a year earlier. Housing finance is also declining, with the total value of new loan commitments plunging 33 per cent from elevated levels in January 2022.

While the supply shortfall is placing upward pressure on home prices, economists say a key factor that will weigh on the market in the longer term is expectations that borrowing costs will remain elevated until at least late 2024. This is because inflation is likely to prove sticky, they say.

“We might see a pretty sustained period of higher rates before we see cuts. That means borrowers will need to pay higher repayments,” said Dr Wong Peng Yew, a senior lecturer at RMIT University in Melbourne. “So that is a factor that will weigh on the market, despite the positive from population growth and housing shortage.” BLOOMBERG