Home prices rose to record highs in February after the Reserve Bank cut the official interest rate.
National home prices rebounded as interest rates fell in February, lifting 0.40% to hit a new record and reversing the soft start to the year.
February’s bounce has reversed the small price falls seen in recent months, and national prices are now sitting 3.94% above their levels a year ago.
•National home prices lifted 0.40% in February to hit a new record. February’s bounce has reversed the small price falls seen in recent months, and national prices are now sitting 3.94% above their levels a year ago.
•After leading the small falls in recent months, capital cities also led the bounce in prices, lifting 0.45% in February. In contrast, regional areas recorded a 0.28% rise in prices over the month. Prices in both capital cities and regional areas are sitting at record highs.
•Melbourne (+0.67%) and Sydney (+0.50%) led price gains in February, while Hobart (-0.03%) was the only capital to see prices fall. Melbourne led prices gains for both houses and units across the capital cities, for the first time since February 2020 for houses and September 2020 for units.
•Behind Darwin, Melbourne and Sydney have seen the fastest acceleration in home price growth over the past quarter. Adelaide, Hobart and Perth have seen the fastest deceleration.
•In Perth, Adelaide and Brisbane, growth has slowed in recent months. However, they remain the strongest performing capitals over the past year, with prices up 13.12%, 11.91% and 10.21%, respectively.
•Despite capital cities leading the price rebound, annual growth in regional areas (+4.54%) has outpaced that of capital cities (+3.70%). Poor affordability and a surge in choice throughout spring tempered price growth in the capitals.
National home prices rebounded as interest rates fell in February, reversing the soft start to the year.
Market sentiment has improved now that interest rates have started to move lower. The prospect of rate cuts had already buoyed sentiment, with clearance rates strengthening in every capital city in early February compared to the final months of 2024.
February’s rate cut boosted borrowing capacities while improved affordability and buyer confidence have driven renewed demand and price growth, reversing the falls of recent months.
Though in isolation, this one 25 basis point rate cut may only increase the average person’s borrowing capacity by about 2-3% (exact impact on borrowing capacity will vary based on individual financial circumstances such as income level, existing debt and the loan term), sentiment also plays a role, as spending decisions are also governed by sentiment and confidence.
The slight improvement to affordability and expectations of future price growth also drive buyer confidence. This is reflected in a further strengthening in auction clearance rates after the Reserve Bank’s decision to begin cutting interest rates.
Annual price growth in regional areas (+4.54%) outpaced the capital cities (+3.70%) in February as poor affordability and a surge in choice through spring tempered price growth in the capitals through 2024.
Though after leading the small falls in recent months, capital cities also led the bounce in prices, lifting 0.45% in February. In contrast, regional areas recorded a 0.28% rise in prices over the month.
Prices in both capital cities and regional areas are sitting at record highs.
Nationally house prices lifted 0.39% in February, while unit prices nationally rose 0.44%.
National house prices have lifted 4.01% over the past year, marginally outpacing growth in unit values (3.59%). Though since the pandemic onset house values are up 52% vs. just 26% for units.
After a significant revaluation of space favouring house values since the onset of the pandemic, affordability pressures, as well as the rejuvenation of city living has left price growth at the national level across property types broadly comparable over the past two years.
However, this trend differs across the capitals. In the past year house price growth (2.98%) has outpaced unit price growth (1.50%) in Sydney, though the opposite is true in Brisbane where unit prices have lifted 13.79% vs. 9.57% for houses in the same period.
Markets in Queensland, South Australia and Western Australia continue to record strong growth. Despite moving lower this month, interest rates have been sustained at high levels for much of the past year, and home prices have risen significantly in recent years while growth in household incomes has not kept up with these increases. As a result, affordability has deteriorated significantly.
Generally, across the capital cities more affordable regions have outperformed over the past year, with strength in homebuying demand buoyed in these regions as buyers push down the value chain. And the more affordable regions within each city like Adelaide’s north, Ipswich, and Perth’s northwest and south have seen rapid price increases.
This month, the Reserve Bank cut the cash rate 25 basis points to 4.10% and market sentiment has improved now that interest rates have started to move lower, boosting borrowing capacities and increasing buyer’s purchasing power.
Behind Darwin, Melbourne and Sydney have seen the fastest acceleration in home price growth over the past quarter. Adelaide, Hobart and Perth have seen the fastest deceleration.
Though the pace of growth has slowed over the past year, Perth remains the top performing capital for annual home price growth (+13.12%), with the comparative affordability of the city’s homes, strong population growth and limited new housing supply contributing to the persistently strong growth of recent years.
February’s rate cut boosted borrowing capacities while improved affordability and buyer confidence have driven renewed demand and price growth, reversing the falls of recent months.
Beyond interest rates, structural factors underpinning home prices remain at play. Population growth remains elevated, though has begun to moderate. Meanwhile, building activity remains challenged, despite completions moving higher and building approvals stabilising, meaning a chronic shortage of housing remains.
Looking ahead, prices are expected to continue lifting and interest rates are expected to fall further.
However, this rate cutting cycle is expected to be modest and the challenged starting point for affordability will likely temper gains compared to past easing cycles, resulting in the pace of home price growth trailing the strong performance of recent years.
* The PropTrack Home Price Index measures the monthly change in residential property prices across Australia to provide a current view on property market performance and trends. PropTrack Home Price Index uses a hybrid methodology combining repeat sales with hedonic regression. The repeat sales method matches resales of the same property while the hedonic regression estimates values based on the value of similar properties. The hybrid model allows two properties in the same Australian Bureau of Statistics Statistical Area 1 (SA1) region, of the same type, to be matched and controls for differences in property characteristics, as in a hedonic regression. The PropTrack Home Price Index is a revisionary index with the whole back history updated monthly with current transaction information.
** This report uses realestate.com.au internal data and data sourced from third parties, including State government agencies. It is current as at the time of publication. This report provides general information only and is not intended to constitute any advice and should not be relied upon as doing so. If you wish to cite or refer to this report (or any findings or data contained in it) in any publication, please refer to the report as the ’PropTrack Home Price Index Report – July 2024’. See report for Copyright and Legal Disclaimers.
