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Ongoing Uncertainty in the Australian Housing Market

Margio
By Margio Updated Jun 6, 2024

The Australian housing market has been a subject of scrutiny for the past few years, with reports of price surges, falls, and shortages making headlines.

The Reserve Bank of Australia’s recent decision to hold interest rates steady in April 2023 to assess the impact of increased interest rates on the economy has added to the uncertainty.

Furthermore, the recent decline in housing finance approvals, coupled with the surprise uptick in house prices in March 2023, has left many experts divided on the state of the housing market.

In this article, we will delve deeper into the latest updates on the Australian housing market and try to make sense of the ongoing balancing act.

TL;DR:

  • Reserve Bank of Australia holds interest rates steady to assess the impact of increased interest rates on the economy.
  • Housing finance approvals declined by 0.9% in February, with owner-occupier activity down 1.2%, and investor loans declining by 0.5%.
  • Australian house prices saw a surprise uptick in March, with values in Sydney rising by 1.4% and Melbourne up by 0.6%.
  • Experts have retained their forecasts of further falls of up to 20% this calendar year.
  • The construction of new housing is falling due to materials and labor supply shortages.

Housing Finance Approvals

The latest figures from the Westpac show that the value of housing finance approvals declined by 0.9% in February. However, this was better than consensus expectations of -1.8%.

Overall, new finance approvals point to a significant slowing in housing credit growth towards 4% year-on-year from 5.8% currently.

Refinancing is booming, up 2.7% month-on-month and 22.6% year-on-year, with $185bn in loans refinanced since May 2022.

Owner-occupier activity was down 1.2% month-on-month, while investor loans declined by 0.5%.

Despite this, first homebuyers were a little more active, with the value of loans to this segment up 0.9% month-on-month. This was led by a 9.8% bounce in NSW due to state government measures reducing stamp duty for new buyers.

Upward Trend in Prices Amidst Uncertainty

According to an article from the Sydney Morning Herald (SMH), Australian house prices experienced a surprise uptick in March. The values in Sydney rose by 1.4%, while Melbourne was up by 0.6%, bringing good news to homeowners.

Despite this development, many experts are still unconvinced that the slump in the Australian housing market is over. Economists are predicting further declines of up to 20% this year.

Although reduced borrowing capacity could discourage some investors from entering the market, low levels of housing stock and an increase in people migrating to Australia post-COVID have helped to stabilize house prices.

However, the construction of new housing is being hindered by materials and labor supply shortages, which may worsen the current shortage of housing stock in the country. If these issues persist, it could lead to a further increase in property prices, putting additional pressure on aspiring homebuyers.

Reserve Bank of Australia’s Decision

The Reserve Bank of Australia (RBA) has announced that it will maintain the current interest rate for the month, to evaluate the impact of increased rates on the economy. This move by the RBA has sparked speculation about the condition of the economy and the implications for the housing market.

While the Board of the RBA anticipates that the inflation rate will require further tightening of monetary policy to reach the target range of 2-3%, the decision to hold steady this month gives them more time to evaluate the economy’s state and outlook amidst significant uncertainty.

Experts are now waiting to see how this decision will impact the housing market in the upcoming months. With the housing market already struggling, many are looking for signals of potential changes in the market.

The RBA’s decision to hold the interest rate steady has many wondering if this will provide a boost to the housing market or further exacerbate the current situation. Only time will tell.

Conclusion

The Australian housing market continues to face challenges, with reports of price surges, falls, and shortages causing uncertainty among experts.

The recent decline in housing finance approvals, coupled with the surprise uptick in house prices in March, has further complicated the situation. The shortage of housing stock, coupled with materials and labor supply shortages, continues to affect the construction of new housing.

The Reserve Bank of Australia’s decision to hold interest rates steady this month has added to the speculation surrounding the state of the economy and the implications for the housing market.

With experts divided on the future of the housing market, only time will tell how these developments will impact the market in the coming months.

Sources: Westpac, SMH, RBA

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