Australia’s housing market has delivered its strongest monthly gains in more than a year, as tight supply and rising buyer confidence drive a broad-based rebound heading into the traditional Spring selling season.
Cotality’s latest national Home Value Index ticked up 0.7% in August, the sharpest monthly increase since May 2024.
Australian residential property has now seen gains of 4.1% over the past 12 months.
The details
Cotality’s Research Director, Tim Lawless, says momentum in the property market has been gradually building since the Reserve Bank’s first interest rate cut in February, which he says boosted borrowing capacity and consumer confidence.
“Once again, we are seeing a clear mismatch between available supply and demonstrated demand, placing upwards pressure on housing values,” he says.
“The annual trend in estimated home sales is up 2% on last year and tracking almost 4% above the previous five-year average.
“At the same time, advertised supply levels remain about 20% below average for this time of the year.”
With demand outweighing supply, vendors are finding themselves in an advantageous position.
Finalised auction clearance rates climbed to 70% in late August, the highest since February last year, with low stock levels intensifying competition.
“We are starting to see the usual start-of-Spring upswing in new listings coming to market, but from a low base,” Mr Lawless says.
“A pick-up in the flow of stock through Spring will be good news for buyers who generally have limited choice at the moment.”
While the market is clearly warming, growth remains modest compared to recent booms.
For example, during the pandemic, national housing values peaked at a monthly growth of 3.1% in March 2021, and an upswing in early 2023 saw growth of 1.3% in May that year.
“I would be surprised if we saw the monthly rate of change in the national HVI (Home Value Index) getting anywhere near these earlier cyclical peaks, given how stretched housing affordability has become,” Mr Lawless says.
“What is more likely is that home values will rise at a more sustainable pace, with demand dampened by affordability constraints, more normal rates of population growth and cautious lending policy.”
He points out that while interest rates are falling, the RBA’s cash rate is still 350 basis points higher than the 0.1% emergency low that fuelled the pandemic property boom.
Capital cities
Almost every capital city posted gains in August, with Hobart (-0.2%) the only exception.
The strongest results came from the mid-sized capitals: Brisbane (+1.2%), Perth (+1.1%), and Adelaide (+0.9%), with Sydney also posting a solid 0.8% to take the median home value in Australia’s most expensive city to an eye-watering $1,224,341.
Darwin also surged, recording a 1% rise in August, taking its median value up 10.2% over the last 12 months; the highest growth rate of any capital city.
“It seems that investors are willing to look through the volatile history of Darwin housing trends, with investors attracted to the low price points and high (rental) yields,” Cotality’s Tim Lawless says.
“Lending to this (investor) segment has more than doubled over the past year.”
Rental markets re-accelerate
Alongside home value growth, the national rental market is also tightening.
Cotality says national rents rose 0.5% in August, the fastest monthly rise since May last year, with annual rental growth lifting to 4.1%.
Vacancy rates remain extremely tight at 1.5%, close to record lows and less than half the 3.3% average recorded in the five years before the pandemic.
Like dwelling values, Darwin leads the rental upswing, with house rents up 6.5% and unit rents surging 9.4% over the year.
This has helped deliver median gross rental yields of 6.5% in the Top End capital, amongst the highest in the country.
By contrast, Sydney, Melbourne and Canberra recorded the weakest rental conditions for investors.
Yet even in those markets, momentum is building.
Sydney remains the most expensive city for tenants, with median weekly rents of $833 for houses and $749 for units, compared with Hobart at the more affordable end, where houses average $603 per week and units $506.
Tim Lawless says the reacceleration in rents could have implications for inflation in Australia, given the large weighting allocated to rental prices in the Consumer Price Index (CPI), Australia’s official inflation measure.
“There is more than a year of lag between rental value estimates and CPI rents paid, but if this uptick in rental growth continues, it could gradually place some upwards pressure on inflation.”
Consumer confidence underpinning housing demand
Beyond housing-specific drivers, Cotality says broader economic conditions are also bolstering demand.
Consumer sentiment reached a three-and-a-half-year high in August, buoyed by lower interest rates and easing cost-of-living pressures.
Household savings are also recovering, trending back towards pre-pandemic averages, helping more buyers save for home deposits and enabling them to better meet loan serviceability requirements.
Meanwhile, real wages are growing at 1.3% annually, their fastest pace since mid-2020 and more than double the pre-COVID decade average of 0.5%.
“The jobs market remains very tight, with unemployment around 4% or lower since late 2021, and underemployment well below its long-term average,” Tim Lawless says.
“These conditions, along with very low levels of negative equity, are another reason why mortgage defaults remain so low.”
First Home Guarantee expansion
Policy changes are also set to play a role in driving demand.
From October 1, the Albanese government’s revamped First Home Guarantee scheme will remove income caps and place limits, while lifting price thresholds significantly.
The scheme allows first-home buyers to enter the market with a 5% deposit without paying lenders’ mortgage insurance, with the government acting as guarantor.
With saving a deposit one of the biggest hurdles for accessing home ownership, Mr Lawless says saving a 5% rather than a 20% deposit could “shave around 10 years off the time it takes to accrue a deposit in an expensive market like Sydney.”
“While the scheme is likely to be popular, it doesn’t do anything to address the underlying factors that have caused housing to be so unaffordable in the first place.”
The outlook
As the Spring selling season gathers pace, the market’s momentum looks set to continue, though Cotality’s Research Director, Tim Lawless, says he expects growth to remain moderate compared with earlier peaks.
He cites affordability constraints and high household debt as limiting factors.
Nevertheless, he believes sellers remain “in the box seat” heading into Spring.
“But the big unknown is how much new stock comes to market,” he says.
“More listings will give buyers greater choice and could take some pressure out of prices.
“Until then, the imbalance between demand and supply will keep upward pressure on values.”