Amidst a resilient economy, national house prices have set a record high for the 5th month in a row with the National Rent Index matching the sentiment, rising by 2.8% in March alone.
Matching the increase in February, house prices have risen by 0.6% in March. Thus, despite high interest rates, high cost of living pressures and low consumer sentiment, housing demand has remained stubborn. Prospectively, this may worsen with a current imbalance between supply and demand, whereupon falling approvals for new homes is running parallel to population growth at its fastest pace since the 1950s. This is further reinforced by unemployment remaining at record low levels and an expectation of interest rate cuts later this year, which will only fuel housing demand. Matching this, the annual increase in Sydney rents have hit 13.6% by virtue of decreasing vacancy rates and post-Covid rent adjustments. However, unlike house prices, Domain’s Nicola Powell (Chief of Research and Economics) claims some sub-markets will operate with more balance, thus alleviating rental pressures. This is further bolstered by the number of prospective tenants per rental listing easing, and international student visa applications starting to fall for the first time in more than 2 years.
Nonetheless, although this points to a resilient and robust Australian economy, the wealth effect on consumption as a result of rising house prices may cause the RBA to be less inclined to implement rate cuts. Hence, this will place a further dampening effect on the economy, placing downwards pressure on an already sluggish annual economic growth rate of 1.5%.
