Australian Property Market: Fluctuations in Home Prices

Explore the surprising recovery and subsequent slowdown in price growth in the Australian property market, with a focus on Sydney and Melbourne. Understand the impact of interest rate rises and the pre-Christmas slowdown.

Over the past few years, the Australian property market has experienced significant fluctuations in home prices. After a surprise recovery in 2022 following interest rate rises, the market saw a slowdown in price growth in mid-2023. The spring selling season brought a large volume of new listings to the market, particularly in Sydney and Melbourne, leading to slower rates of price growth. Additionally, an additional rate rise in November and the pre-Christmas slowdown further tempered price growth.

The volatility in price changes has been largely driven by interest rate rises, putting pressure on household budgets and reducing the amount that buyers can borrow. However, the recovery in the past 12 months has helped put most capital cities and regional areas back into positive year-on-year growth. Perth is leading the pack with annual growth of 15.45%, while Brisbane and Adelaide have also experienced strong rises. On the other hand, Hobart, Darwin, regional Victoria, and regional Northern Territory are still down year-on-year.

The pandemic lockdowns have led to city dwellers moving to regional areas and interstate, resulting in stronger price growth in regional areas compared to capital cities. Despite the downturns in 2019 and 2022, city home values are 75.7% higher than in 2014, and regional areas are 92.5% higher. Hobart has been slowest to recover from the most recent downturn, but since 2014, home values have more than doubled in 10 years. Adelaide and Brisbane have also experienced outstanding growth since 2014, and values in all capitals except Perth have increased by more than 50%.

The variance between house and unit prices has also increased over time, with the national median sale price for houses now approximately 31.9% higher than for units. This is largely due to the higher demand for houses during the pandemic, driven by the need for more outdoor space and extra rooms to work from home.

Looking ahead, further price growth is expected this year, albeit at lower levels than in 2023. With some cities and regional areas already at their price peaks, further areas are expected to follow suit and hit all-time highs. House values have increased by 89.4% since 2014, compared to 44.4% for units, indicating that the gap between houses and units is likely to widen in the coming year.

The Australian property market has seen significant fluctuations in home prices over the past few years, driven by various factors including interest rate rises and the impact of the pandemic. While some areas have experienced strong growth, others are still recovering from downturns. Looking ahead, further price growth is expected, albeit at lower levels than in previous years.