May 7th 2024.
According to new research released today, the historic two-year cycle of interest rates in Australia has had a varied impact on different areas, including cities, suburbs, and regions. The analysis conducted by CoreLogic compared the performance of the property market two years before and after the cycle of interest rate rises. The results showed that home values have only increased by 2.8% since April 2022, a significant contrast to the substantial 31.7% increase in the two years prior.
The Reserve Bank of Australia made the decision to keep interest rates on hold at 4.35%, which is the highest it has been in 12 years. Tim Lawless, the research director at CoreLogic, explained that the relatively small increase in home values over the past two years is a result of the 7.5% drop in national home values that occurred in the early stages of the rate hike cycle. This decline was a consistent trend between May 2022 and January 2023. However, since January 2023, the national Home Value Index has steadily risen each month, resulting in an overall increase of 11.1%.
Lawless added that while it may seem like property values are constantly increasing, it's important to remember the sharp downturn that occurred immediately after the first rate increases. He also noted that the rate hikes have not had a significant impact on the performance of many Australian suburbs, with 43.6% hitting a record high at the end of April 2024. However, there is a noticeable difference between capital city suburbs and regional areas, with almost half of the former reaching a peak last month.
Despite the consistent increase in home values since the market bottomed out, Lawless pointed out that there is still a significant diversity in the housing market's performance. He stated that the percentage change in housing values during the rate hike cycle ranged from a 25.7% surge in Perth to an 11.2% drop in Hobart. In Sydney, house values have only increased by 0.4% in the past two years, while Melbourne has experienced a 4.2% decrease since April 2022.
Lawless also highlighted the strong growth in house values in cities like Perth and Adelaide, which can be attributed to record-high migration levels, tight rental conditions, and undersupply. In fact, in April 2024, 97.3% of Perth suburbs reached a record high, beating out Adelaide at 90.0% and Brisbane. However, in weaker markets like Hobart, not a single suburb was at a record high, and only 1.5% of Melbourne suburbs – all in the south-east – reached a record high last month.
Despite the higher mortgage rates and reduced borrowing capacity, Lawless believes that the strong performance of the Perth and Adelaide markets will continue in the coming months. He stated that even with these factors, buyers, including investors, are still turning to these cities due to their relative affordability, strong rental conditions, and higher gross rental yields. This high demand has outweighed the supply, resulting in a significant increase in property values over the past year.
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