Australia’s Property Market Continues to Thrive Despite Economic Challenges

Despite high interest rates and inflation, Australia’s property market remains robust. Sydney’s median house price has soared to over $1.4 million, making it the nation’s most expensive market, while Brisbane has now claimed the title of the second most expensive capital.

CoreLogic’s recent report highlights a tightening market with near record-low home listings. Despite this, capital city dwelling values saw a significant increase of 0.8% in May, marking an 8.3% surge over the past year. Sydney’s dwelling values rose by 0.6%, with house values reaching a record $1.44 million and unit values hitting $848,961.

Over the last year, Sydney’s house values have surged by an impressive 8.2%, well above the city’s inflation rate, while unit values have risen by 5.4%.

In contrast, Melbourne is showing signs of becoming more affordable for buyers. The median house value has stabilised at $937,289, and unit values have seen a modest increase of 0.3% to $614,299. Melbourne’s house values rose by 1.9% over the past year, which, when adjusted for inflation, suggests improved affordability.

Meanwhile, Brisbane has overtaken Canberra as the second most expensive capital after Sydney. However, despite rising house prices, the rental market is experiencing a slowdown. CoreLogic reported a minimal 0.7% increase in rent in May, attributed to reduced net migration and rental affordability pressures since early 2023.

In response to cost-of-living pressures, over 2.6 million workers are set to receive a 3.75% minimum wage increase this year. The decision raises the minimum hourly rate from $23.23 to $24.10, about $33 more per week. However, the increase fell short of expectations, with economists cautioning against higher raises that could complicate the Reserve Bank’s efforts to control inflation and lower interest rates.

South Australia has abolished stamp duty for first home buyers on new properties, aiming to address rising house prices. Treasurer Stephen Mullighan announced the move, which is expected to aid an additional 1200 first-time buyers over the next four years. The new policy, applicable to new builds and unsold existing stock, also removes the value cap for the $15,000 first home owner grant. The new policy will save buyers an estimated $50,000 on a $750,000 home.

Australians were believed to have saved cash during the COVID-19 pandemic, which they’ve now been spending, contributing to rising inflation. Westpac economists say that instead of spending about 23% of the $255 billion saved during the pandemic, Australians have spent around 45%. This amounts to about $56 billion. However, this money hasn’t increased the volume of goods and services bought but has been used to keep up with rising prices. Households are saving much less overall.

The Australian economy’s growth in the March quarter was minimal, with just a 0.1% increase attributed to government spending and household expenses. Despite efforts to stimulate growth, the economy remains overheated, prompting analysts to urge further slowing to bring inflation within the Reserve Bank’s target range of 2 to 3%.

On a positive note, higher selling prices in the property market have led to an increase in new unit construction. However, without corresponding declines in borrowing or materials costs, the current spike may be unsustainable in the long term, according to Urbis director Mark Dawson.

In summary, while certain segments of the economy, such as the property market, remain robust, challenges persist, requiring careful management to ensure sustainable growth and affordability.