While the Australian regional markets notably vary in performance, constrained supply and strong underlying demand continue to drive up house prices nationwide, affordability challenges further intensified by elevated interest rates.

This extended overview from the Global Property Guide covers key aspects of the Australian housing market and takes a closer look at its most recent developments and long-term trends.

Table of Contents:

• Housing Market Snapshot
• Historic Perspective
• Demand Highlights
• Supply Highlights
• Rental Market
• Mortgage Market
• Socio-Economic Context

Housing Market Snapshot

House prices in Australia have been rising consistently, reaching new record highs since November 2023. In August 2024, the median value of residential dwellings nationwide climbed to AUD 802,357 (USD 535,338), marking a 9.48% year-on-year increase, as reported by CoreLogic's monthly Hedonic Home Value Index. The combined median value for capital cities increased to AUD 885,877 (USD 591,063), reflecting a 10.16% year-on-year growth.

The Reuters survey of 14 real estate analysts conducted in May 2024 expects home prices to rise 5.3% this year, a consensus view largely unchanged since August 2023. Subsequent 5.0% increases are projected for 2025 and 2026.

Australia house price annual change:

Price trends across capital cities varied significantly. Perth saw the highest year-on-year growth in median house values at 29.35%, followed by Brisbane at 17.04% and Adelaide at 15.84%. However, CoreLogic's Head of Research, Eliza Owen, cautioned that the rapid price growth seen in mid-sized capitals may not be sustainable, stating: "Housing values cannot keep rising at the same pace...when affordability is becoming increasingly stretched, particularly in the context of elevated interest rates, loosening labor market conditions and cost of living pressures."

In contrast, weaker performances in Melbourne, Canberra, and Hobart were primarily attributed to the tax burden on investment property owners in Victoria and sluggish interstate migration in Victoria, Tasmania, and the ACT. These markets also experienced a strong run-up in prices during the 2010s, making sustained demand difficult amid high interest rates. Owen noted: "Supply is also a big factor for Victoria, where the state saw more dwelling completions over the past decade than any other state or territory. ACT also saw a spike in unit completions from 2019 to 2023, which has helped keep downward pressure on the overall dwelling market."

Median house value dynamic in state/territory capitals:

Historic Perspective:

From Regulatory Tightening to Post-Pandemic Adjustments

The 2017-2018 period in Australia was characterized by regulatory interventions aimed at reducing risky lending practices. As a result, borrowing capacity was constrained, contributing to the first major downturn in housing prices since 2008 against the backdrop of a relatively active construction sector. In 2019, the Reserve Bank of Australia (RBA) responded to the slow economic growth by cutting interest rates, which helped to support the housing market. Despite this, the number of dwelling commencements and completions both saw a decline.

At the onset of the COVID-19 pandemic, a significant downturn due to economic uncertainty and widespread job losses was feared. However, contrary to these expectations, the market surged, with nominal median house value rising by 6.95% (6.04% inflation-adjusted). This growth was driven by record-low interest rates, government stimulus measures such as the HomeBuilder grant, and a shift in consumer preferences towards larger homes to accommodate remote work. At the same time, housing completions decreased even further, reflecting the impact of supply chain disruptions.

In 2021, the market experienced an extraordinary boom, with nominal median house value skyrocketing by 23.47% year-on-year, and real indicator increasing by 19.25%. This unprecedented hike was supported by continued low interest rates, high demand for housing, and a supply shortage exacerbated by delays in construction. However, this rapid growth proved unsustainable, and by 2022, the market began to cool. The correction was largely due to the RBA's decision to raise interest rates in response to rising inflation, which increased mortgage costs and reduced housing affordability. Dwelling commencements and completions both dropped, as the construction sector continued to face challenges.

2023 brought signs of recovery, with nominal median house value increasing by 6.93% (2.79% inflation-adjusted). However, the pace of dwelling commencements and completions continued to slow, with only about 165,000 units commenced and 175,000 units completed. The ongoing supply constraints, coupled with steady demand, maintained upward pressure on prices.

Annual median house value price change (based on year-end Hedonic Home Value Index by CoreLogic and consumer price index):

Construction activity dynamic (commenced and completed housing units, seasonally adjusted):

Data Source: ABS.

Demand Highlights:

Buyer Sentiment Subdued Despite Strong Underlying Demand for Housing

According to the latest data from the Australian Bureau of Statistics (ABS), nearly 242,000 dwelling transfers were registered nationwide during the first half of 2024, reflecting a 3.08% increase compared to the same period in 2023. Of these transfers, 63% involved established houses, which recorded a modest year-on-year growth of 1.14%, while attached dwellings, representing the remaining 37%, saw a slightly more pronounced year-on-year increase of 6.78%.

Note: Attached dwellings include flats, units, and apartments, and semi-detached, row, and terrace houses.
Data Source: ABS.

In terms of regional distribution, Sydney and Melbourne registered the highest number of transfers for both established houses and attached units. Adelaide experienced the highest year-on-year growth in established house transfers, with a 16.89% increase, while Sydney led in attached dwelling transfers, with a 14.57% year-on-year growth.

Number of dwelling transfers in state/territory capitals:

Overall, the housing buyer sentiment in the country remains subdued, as demonstrated by the latest Westpac-Melbourne Institute Consumer Sentiment Index, published by the University of Melbourne. As of September 2024, the nationwide 'time to buy a dwelling' index stands at 76.1, notably below the long-term average of 117. State-level movement of the index varies, reflecting divergent price trends and their effects on housing affordability in the regions, with New South Wales and Victoria most recently recording a rise, while Queensland and Western Australia showed declines.

At the same time, underlying demand for housing in Australia continues to grow, driven by demographic changes, such as the rise in single-person households and a decrease in household sizes, as well as strong population growth fueled by overseas migration. Combined with the ongoing housing shortage, these pressures are expected to persist, unlikely to ease in the near future, notes the real estate portal Domain.

In terms of foreign investment, the 2022-23 financial year recorded 5,360 residential real estate purchases involving foreign ownership, amounting to AUD 4.9 billion, according to the Australian Government Department of Treasury. Victoria, New South Wales, and Queensland accounted for 74.9% of all transactions and 82.7% of the total value. New dwellings represented 49.3% of purchases, followed by 34.0% for established dwellings, and 16.7% for vacant land.

Data Source: Department of Treasury.

KPMG Australia experts suggest that foreign demand for Australian residential real estate may face uncertainty in 2024 due to rising fees and stricter compliance requirements. In the June 2024 Residential Property Market Outlook, they note: "Fees for investments in established dwellings will rise significantly, but lower fees will be introduced for 'build-to-rent' projects. This is expected to reduce foreign demand for established dwellings while contributing to an increase in housing stock, potentially alleviating the rental crisis."

Supply Highlights:

Persistent Supply Gap Threatening Housing Availability

Despite increasing demand for housing, Australia faces considerable challenges in expanding its housing supply. Experts at JLL point to severe shortages of skilled labor within the construction industry as a key factor hindering project completion and extending construction timelines. This labor shortage, exacerbated by a reduced inflow of skilled migrants during the pandemic and intensified competition for workers due to large infrastructure projects, has become a significant bottleneck for the sector. In addition, supply chain disruptions, compounded by rising inflation, have led to material shortages and escalating costs, making large-scale developments riskier and more expensive, thus discouraging new project starts.

Data from the ABS shows that just over 80,000 units were approved between January and June 2024, reflecting a 1.01% decline compared to the same period in 2023. On an annual basis, the number of dwelling approvals in 2023 dropped by 14.44% compared to 2022.

Data Source: ABS.

Regional disparities in new supply are evident across Australia's major cities. Greater Melbourne accounted for the largest share of dwelling approvals (34%), followed by Greater Sydney (23%). In terms of year-on-year performance dynamic, declines were most pronounced in Greater Darwin (-22.54%) and Greater Sydney (-20.09%), while Greater Perth registered a substantial increase of 60.31%.

Number of Dwelling Units Approved in Greater Capital City Statistical Areas:

The impact of elevated interest rates has further compounded industry challenges, as increased borrowing costs have rendered many housing developments financially nonviable, leading to delays or cancellations. The rise in interest rates has also triggered a significant uptick in bankruptcies among construction firms over the past 12 to 18 months, further constraining housing supply.

The convergence of labor shortages, rising construction costs, and increased insolvencies have created substantial headwinds for the housing market, keeping housing completions well below pre-pandemic levels despite the growing need. The number of new dwelling completions continues to decline, with a year-on-year reduction of 13.50% in the first quarter of 2024 and a 9.47% decline when comparing 2023 to 2022, as reported by ABS. JLL experts forecast that these challenges will persist in the short to medium term, affecting both housing availability and affordability, although potentially at a more moderate pace than in recent years.

Data Source: ABS.

Constrained supply is driving up prices and exacerbating affordability challenges. According to the most recent "State of the Nation's Housing 2022-23" report by Housing Australia (formerly NHFIC), the gap between housing supply and household formation has widened, with the cumulative shortfall projected to reach approximately 106,300 dwellings between 2023 and 2027.

Rental Market:

End of Rental Boom Anticipated

According to the research carried out by the Global Property Guide in Q3 2024, gross rental yields for residential units in Australia averaged at 4.98%, 0.21 percentage points down from 5.19% previously reported in Q1 2023. Regional performance varied, with the highest yields of 7.27% registered in Darwin, followed by Melbourne (5.03%) and Perth (4.93%).

Average gross rental yields by submarket:

According to a recent analysis from CoreLogic, rent yield dynamics in the country are changing along with the diverse value growth pattern across major cities and an apparent slowdown in rent growth signaling the likely end of the rental boom, which could shape future investor activity. "Yield compression is common when values are rising strongly, which may slow investor interest in high-growth cities. However, many investors are attracted to long-term prospects for capital growth over high rent returns," said Eliza Owen, Head of Research at CoreLogic.

Recent data from the ABS shows that after peaking in the summer of 2023, the growth in rental rates across Australia has been slowing down, most recently registered at 6.9% year-on-year in July 2024, compared to 7.1% a month earlier in June and 7.6% a year ago in July 2023.

The overall slowdown trajectory for rents has also been highlighted in the most recent reporting from CoreLogic, whose national rental index has flatlined over the past two months, demonstrating the weakest rental market conditions since the early phases of the pandemic. According to CoreLogic, the slowdown was most evident in the unit sector.

Data Source: ABS.

At the same time, the nationwide rental price growth remains notably elevated above the pre-pandemic baseline due to a tight rental market reflected by low vacancy rates in most capital cities.

According to the results of the latest Survey of Income and Housing (SIH), carried out by the ABS, 31% of Australian households rent their homes. The research published by the property marketplace Domain in early 2024 showed Australia's vacancy rate at a new record low of 0.7%, with Sydney, Melbourne, and Perth at record lows and Adelaide close to an all-time low.

Among the major cities, according to CoreLogic figures, in the 12 months to August 2024, the most pronounced growth in rents was observed in Perth (11.2%), followed by Adelaide (8.4%), Melbourne (7%), Sydney (6.4%), and Brisbane (6%). Sydney remains the most expensive rental market in the country, with median rent for both apartments and houses above other major cities and the national level.

Median weekly rent, per submarket (as reported by Rent.com.au)

Mortgage Market:

Despite High Interest Rates New Lending Surges

After a series of consecutive hikes starting mid-2022, the cash rate of the Reserve Bank of Australia (RBA) has been stable at the 4.35% mark since November 2023. In their August 2024 monetary policy statement, the RBA held the rate, noting it will need to remain high enough until the nationwide inflation returns to the bank's target range.

Economists from Australia's largest banks, cited by the financial platform Canstar, estimate the current level to be the rate's peak, but expect the first cuts to occur no sooner than November 2024, with some experts predicting the cuts to begin only in May 2025.

In line with the policy rate trend, average interest rates on new housing loans in the country have been growing consistently in the last two years, most recently registering at 6.27% for owner-occupied housing and at 6.50% for investment housing in July 2024 - both significantly above the pre-2022 baseline of below 3%. The average interest rates on outstanding housing loans also remain elevated at 6.05% for owner-occupied housing and 6.41% for investment housing, according to the RBA data. The same pattern was observed across loans with various rate fixation periods.

Interest rates on housing loans to individuals:

Data Source: RBA.

Despite the elevated interest rates, residential lending activity in Australia is picking up after a slowdown in 2023. The ABS reported AUD 196.8 billion (USD 129.7 billion) in new housing loans committed in the first seven months of 2024, which is 20.4% above the comparable 2023 level. The growth was more pronounced in the investor segment (31.4% year-on-year) than in the owner-occupied segment (14.7% year-on-year), with new lending in this segment still below the comparable level two years ago.

The surge in new lending is seen to be mainly driven by first-home buyers and investors eager to enter the market. "Fear of missing out as house prices rise is driving first home buyers to take the plunge," says Canstar finance expert Steve Mickenbecker, quoted by the mortgage and finance news outlet Australian Broker. "Rising house prices and an expectation of lower interest rates are encouraging investors into the market in gold rush proportions," he adds.

Loans for investment properties make up 37% of the total amount of new lending committed in the seven months of 2024 and the remaining 63% are loans for owner-occupied properties. In both segments the dominating borrowing purpose is the purchase of existing dwellings (75.4% of investment loans and 77% of owner-occupied loans), followed by the construction of dwellings, new dwellings, residential land, and alterations and repairs.

During this period, 1,766 new housing loans for AUD 1,328 million (USD 875.3 million) were committed to non-residents, according to the ABS data.

Note: Pure new loans, excluding refinancing.
Data Source: ABS.

According to the 2021 Census data, 35% of Australian households own their residences with a mortgage. The average loan size for the owner-occupied dwelling was most recently reported by ABS at AUD 640,998 (USD 422,565) nationwide, with the highest average level among the states recorded in New South Wales at AUD 782,916 (USD 516,122).

The total value of outstanding housing loans in Australia demonstrated moderate 4.7% and 4.6% annual growth in 2023-24 and 2022-23, respectively (compared to 8.2% in 2021-22 and 5.5% in 2020-21) and reached AUD 2.3 trillion (USD 1.5 trillion) in July 2024. Represented as a percentage of GDP, outstanding housing loans dropped from over 93% in 2020-21 to about 90% in 2021-22 and currently 86.4% in 2023-24. Of the total outstanding amount, 68% is made up of loans on owner-occupied housing and 32% of loans on investment housing.

Note: Credit stock vs Annual GDP in current prices, reporting for financial years ending in June.
Data Source: RBA, ABS.

Socio-Economic Context:

Slower Macroeconomic Growth Amid Persistently Elevated Inflation

Australia's post-pandemic recovery continues; however, growth has been weakening on the heels of tighter macroeconomic policies and financial conditions, with the real GDP growth slowing down from 5.6% in 2021 to 3.8% in 2022, and 2.1% in 2023. According to the IMF analysis, economic activity is projected to further decelerate in the near term due to tightening of monetary conditions and subdued private consumption, as households with mortgages bear the brunt of higher interest rates, amidst lower real wages and depleting savings. The IMF expects the annual real GDP growth to drop to 1.5% in 2024, before stabilizing at 2% in the following year.

Nationwide inflation has peaked but remains relatively high, most recently registering at 3.8% in Q2 2024. The IMF staff country report notes that while external price pressures have abated, leading to an easing in goods inflation, persistence in non-tradeable prices driven by demand pressures will keep inflation elevated. Under baseline projections, inflation would decline gradually, reaching 3.5% in 2024 and 3% in 2025, before returning to the RBA's target range of 2-3% in 2026.

Data Source: IMF.

Australia's labor market is still tight but shows signs of easing. In the financial year 2022-23, the ABS reported overseas migration contributing a net gain of 518,000 people to the country's population - the largest estimate in a decade. According to the IMF analysis, the pickup in migration inflows in 2023 lifted population growth and improved the balance between labor supply and demand.

As a result, the vacancy-to-unemployment ratio declined, and the unemployment rate has ticked up, while still around historical lows (4.2% in July 2024, up 0.5 points since the same period a year ago, as reported by the ABS). The IMF projects the indicator to register at 4.2% in 2024 and 4.5% in 2025, expecting the strong net migration inflows to further alleviate labor market tightness and add to demand, especially in the rental market.

Data Source: ABS.

In public finances, during the fiscal year 2022-23, strong labor market and favorable commodity market developments in Australia bolstered tax revenue, leading to a decline in the overall deficit of the consolidated general government to below 1% of GDP, with the Commonwealth Government achieving the first cash-balance surplus in 15 years. More recently, the revised budget estimates for 2023-24 showed an AUD 9.3 billion surplus in the underlying cash balance, with an AUD 10.4 billion positive turnaround from the mid-year forecast, largely due to contributions from higher commodity prices and personal income tax receipts.

The 2024-25 federal budget presented by the Department of Treasury in May 2024, highlights housing development as one of the focus themes for the upcoming period and includes the following key initiatives:

• AUD 6.2 billion in new housing investment
• AUD 1 billion in additional funding for states and territories to deliver new housing
• AUD 16.5 billion in additional funding for infrastructure projects to connect cities and towns
• AUD 1.9 billion over 5 years for a 10% increase in Commonwealth Rent Assistance
• More student accommodation to reduce pressure on the private rental market

In their analysis of the Budget, KPMG Australia suggested that the planned measures on energy and housing affordability, combined with the already legislated personal income tax cuts from 1 July 2024, may give households more confidence that cost-of-living pressures will abate in the future.

Overall, despite current economic headwinds, the outlook for Australia is stable, supported by the country's "high income per capital, as well as strong institutions and an effective policy framework, which facilitated nearly thirty consecutive years of economic growth before the COVID-19 pandemic and continues to support economic resilience amid global shocks," says Fitch Ratings.

Sources:

1. Australian Bureau of Statistics (ABS)
   1. Total Value of Dwellings: https://www.abs.gov.au/
   2. Dwelling Approvals: https://www.abs.gov.au/
   3. Building Activity: https://www.abs.gov.au/
   4. Australian National Accounts: https://www.abs.gov.au/
   5. Government Finance Statistics, Australia: https://www.abs.gov.au/
   6. Lending Indicators: https://www.abs.gov.au/
   7. Housing: Census: https://www.abs.gov.au/
   8. Housing Occupancy and Costs: https://www.abs.gov.au/
   9. Labour Force, Australia: https://www.abs.gov.au/
   10. Overseas Migration: https://www.abs.gov.au/
2. Reserve Bank of Australia (RBA)
   1. Cash Rate Target: https://www.rba.gov.au/
   2. Lenders' Interest Rates: https://www.rba.gov.au/
   3. Financial Aggregates: https://www.rba.gov.au/
   4. Economic and Financial Statistics: https://www.rba.gov.au/
   5. Statement on Monetary Policy - August 2024: https://www.rba.gov.au/
   6. Measures of Consumer Price Inflation: https://www.rba.gov.au/
   7. Recent Drivers of Housing Loan Arrears: https://www.rba.gov.au/
   8. Exchange Rates: https://www.rba.gov.au/
3. Australian Government Department of Treasury
   1. 2024-25 Budget Overview: https://budget.gov.au/
   2. Insights Into Foreign Purchases and Sales of Residential Real Estate 2022-23: https://foreigninvestment.gov.au/
4. Australian Government Department of Finance
   1. Commonwealth Consolidated Financial Statements: https://www.finance.gov.au/
   2. Commonwealth Monthly Financial Statements: https://www.finance.gov.au/
5. Housing Australia (formerly NHFIC)
   1. State of the Nation's Housing Report 2022-23: https://www.housingaustralia.gov.au/
6. International Monetary Fund (IMF)
   1. Country Overview: Australia: https://www.imf.org/
   2. IMF Stuff Country Report: https://www.imf.org/.
7. CoreLogic
   1. The End of the Rental Boom is in Sight: https://www.corelogic.com.au/
   2. Hedonic Home Value Index: https://www.corelogic.com.au/
8. KPMG Australia
   1. Australian Federal Budget 2024: https://kpmg.com/
   2. Australia Economic Outlook Q2 2024: https://kpmg.com/
   3. Residential Property Market Outlook June 2024: https://assets.kpmg.com/
9. Jones Lang LaSalle (JLL)
   1. Australia's Housing Shortage: Demand Outstripping Supply: https://www.jll.com.au/.
10. University of Melbourne
    1. Consumer Pessimism Deepens Slightly: https://melbourneinstitute.unimelb.edu.au/
11. Fitch Ratings
    1. Fitch Affirms Australia at 'AAA'; Outlook Stable: https://www.fitchratings.com/
12. Domain Research
    1. Vacancy rates: February 2024: https://www.domain.com.au/
    2. Domain Forecast Report Financial Year 2025: https://www.domain.com.au/
13. Canstar
    1. Interest Rate Forecast and Predictions for 2024: https://www.canstar.com.au/
14. Reuters
    1. Australian House Price Rises Seen Extending Through 2026: https://www.reuters.com/
15. Rent.com.au
    1. August 2024 Rental Market Snapshot: https://www.rent.com.au/
16. Forbes
    1. Interest Rate News: https://www.forbes.com/
    2. Australian Property Market: https://www.forbes.com/
    3. What is the Average Mortgage in Australia: https://www.forbes.com/
17. Australian Broker
    1. Home Loan Market Surges: https://www.brokernews.com.au/