Housing Prices Show Modest Gains After Three-Month Downturn
Australia’s property market showed signs of recovery in February, as the first interest rate cut in over four years lifted buyer sentiment. However, high borrowing costs and elevated home prices continue to cloud the market’s long-term outlook.
According to CoreLogic, national property prices rose 0.3% in February compared to January, breaking a three-month streak of declines or stagnation. Despite the recent slump, home values are now just 0.1% below their peak from October 2024.
Melbourne and Hobart Lead Market Gains
Among major cities, Melbourne and Hobart—both of which saw price declines over the past year—recorded the strongest growth in February, with home values increasing 0.4%.
Tim Lawless, CoreLogic’s research director, noted that the recent rate cut played a role in boosting buyer confidence, but it did not significantly improve borrowing capacity due to its small magnitude (0.25 percentage points).
“The rate-cutting cycle is very fresh and is likely to be drawn out… interest rate settings are likely to remain in restrictive territory for some time yet,” Lawless said.
“Until home loan serviceability improves more substantially, it’s hard to see housing markets moving into a material growth trend.”
Interest Rates and Market Outlook
The Reserve Bank of Australia (RBA) has cautioned that future rate cuts will be gradual, with market expectations suggesting just two more reductions by the end of 2025, bringing the cash rate to 3.6%.
While the recent rate cut provided a psychological boost to the market, actual affordability challenges remain. Elevated home prices and higher mortgage repayments continue to weigh on buyer demand.
Factors Driving Market Resilience
Despite these challenges, several key factors have helped stabilize the market:
- Immigration Growth: Record-high population growth has kept housing demand strong, especially in urban areas.
- Limited Housing Supply: A shortage of new homes has supported property prices, preventing a sharp decline.
- Auction Clearance Rates Improve: CoreLogic data shows auction success rates have returned to long-term averages, indicating a recovery in buyer confidence.
Cities to Watch: Melbourne, Canberra, and Hobart
Markets that experienced significant price declines, such as Melbourne, Canberra, and Hobart, are expected to rebound more strongly, as relative affordability attracts more buyers and investors.
Conclusion
Australia’s property market has turned a corner following its mild downturn, but sustained growth will depend on further rate cuts, improved affordability, and the strength of consumer sentiment. While short-term gains are evident, the market remains in a fragile state, awaiting clearer signals from the RBA and economic conditions.
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