The impact of two years of rate rises on Australian home prices

The Reserve Bank of Australia (RBA) decided at its recent May board meeting to leave the cash rate on hold at 4.35%.

While the decision was expected, interest rates remain at their highest point in 12 and a half years, as the RBA attempts to use the only real tool in its arsenal - the movement of official interest rates - to bring down inflation.

There have been no less than 13 hikes since the RBA started raising the cash rate from the emergency pandemic low of 0.1% two years ago in May 2022.

Initially, national property prices went backwards, before starting a recovery early last year that has seen prices hit new highs, despite rising interest rates.

But when you drill down into the figures, what you find is a very mixed property picture across Australia, as a new analysis from CoreLogic shows.

The findings

CoreLogic’s analysis shows that home values across the nation have only risen 2.8% since April 2022.

It makes a sharp contrast with the huge 31.7% increase in the preceding two years, during the so-called “pandemic boom”.

CoreLogic’s Research Director Tim Lawless says the relatively small increase since April 2022 is a legacy of the 7.5% drop in national values during the early phase of the RBA’s rate hiking cycle, which saw CoreLogic’s national Home Value Index fall between May 2022 and January 2023.

Since the index bottomed out at the start of last year, national home values have risen every month to now be 11.1% higher.

“The perception might be that property values are continually increasing,” Tim Lawless says,“ but we can’t forget the short and very sharp downturn that occurred in the immediate aftermath of the first rate increases.”

“Since the market bottomed there’s been 15 consecutive monthly increases in values nationally, but that performance is not indicative of the entire market.”

“Underneath the headline figure, there’s significant diversity in the housing market’s performance,” he says.

As a case in point, Tim Lawless points to the market for houses.

In Perth, buyers shrugged off interest rate increases, sending house prices surging 25.7% since April 2022, while Hobart has seen an 11.2% drop during the same period.

Despite stellar growth of 12.5% last year, Sydney house values are actually only 0.4% higher than they were two years ago, while Melbourne houses are now 4.2% cheaper than they were in April 2022.

Houses in Brisbane have added a solid 6.1% in value over the past two years, but this pales into comparison with their 50.9% appreciation during the pandemic boom.

“While some cities have exhibited resilience driven by robust economic fundamentals and housing demand, others such as Melbourne, Hobart and Canberra, where housing is more affordable now compared to two years ago, have grappled with factors such as higher supply, affordability constraints and weaker demographic trends,” Mr Lawless says.

Stand-out suburbs

CoreLogic’s Tim Lawless says 13 straight rate hikes from the central bank have also had an uneven effect across Australia’s 15,353 suburbs and localities.

He says 43.6% hit a record high at the end of April 2024.

“Demand for housing in Australia remains extremely high in many areas, particularly with the added pressure of record high migration levels, persistently tight rental conditions and an undersupply in dwellings.”

“These figures show buyers are determined to get their foot in the door of home ownership irrespective of rate hikes and the rising cost of living.”

Perhaps unsurprisingly, nine of the top ten suburbs with the strongest house value growth over the past two years are in Western Australia.

Armadale, in Perth’s south-east, topped the list, with house values increasing an astounding 60.0% since April 2022.

That’s on top of a 36.2% gain between April 2020 and April 2022.

According to CoreLogic’s calculations, 97.3% of suburbs in Perth were at record high home values in April 2024, with Adelaide and Brisbane not far behind at 90.0% and 85.1%, respectively.

Contrast that with Hobart, where not a single suburb was at a record high.

Only 1.5% of Melbourne suburbs – six suburbs all in the city’s booming South East - were at record highs in April 2024.

Underperformers

CoreLogic’s figures also indicate that 37.9% of suburbs have recorded a decline in home values since the rate hike cycle began.

Hobart suburbs have been hit hardest, with 98.0% declining in value, followed by Melbourne at 87.8% and Canberra at 87.6%.

Mr Lawless says these cities have felt the impact of rising interest rates because of what he says is “a better balance between the underlying demand/supply fundamentals”.

“Hobart and Canberra were buoyant with housing activity during the height of the pandemic, but they’ve since faced a rise in listings, affordability constraints, and subdued demographic conditions such as negative interstate migration levels.”

But he says it’s a more complex picture in Melbourne.

“The city experienced softer housing market conditions through the pandemic, which coincided with a sharp drop off in net overseas and record low interstate migration rates,” he says.

“More recently, this has been compounded by a raft of policy changes that have dampened buyer confidence despite surging overseas migration and a slowdown in the interstate migration outflow.”