NSW dwelling price leads the nation at $1.21 million, but risk of fall looms as interest rates bite, warns Ekam Capital

The average residential dwelling price in New South Wales reached $1,212,000 in the March quarter, the highest in the country, according to the Australian Bureau of Statistics Total Value of Dwellings data. However, Robert Baharian, co-founder and director of Ekam Capital, warns that the property market remains vulnerable to higher interest rates and rising unemployment in the second half of 2024 and into 2025.

Nationwide, the average price of residential dwellings rose by $14,300 or 1.5% to $959,300 during the quarter. Following NSW, the Australian Capital Territory ($950,500) and Victoria ($914,300) had the next highest average prices, while the Northern Territory had the lowest at $511,400.

Mr Baharian noted that slowing growth in house prices is already evident in capital cities, primarily in Sydney and Melbourne, as high levels of debt and the cost of living weigh on households. “As a nation, Australia’s household sector is among the most indebted in the world which means rising rates will eventually hurt households’ ability to take on more debt, especially if we see a jump in the employment rate towards 5%,” he said.

Based on historical data, Mr Baharian suggests that interest rates could remain on hold until at least September this year, and if the mid-1990s are any indication, it may not be until April 2025 before a cut in interest rates is seen. Over the last 50 years, the average number of months between a peak in interest rates in Australia and subsequent rate cuts is about 10 months, with the shortest duration being in 2008 during the onset of the Global Financial Crisis and the longest during 1995-1996 as inflation improved after peaking at 5.1% in 1995.

“Households may have to buckle in for higher interest rates for many months more as it may not be until 2025 when they see their mortgage costs fall with official interest rates,” Mr Baharian warned.

As interest rates continue to rise and the risk of unemployment grows, the cities likely to be hit hardest by these factors, the outlook for official and lending interest rates by the end of the year, and the impact of wages inflation on the rates outlook are among the key issues.