Two years on, Australian home prices prove resilient despite record interest rate hikes

Australian home prices have remained resilient two years after the start of the most substantial interest rate tightening cycle on record, according to a new PropTrack Market Insight report.

PropTrack Senior Economist Eleanor Creagh said that while rising interest rates can lead to lower home prices as borrowing capacities reduce and affordability deteriorates, there are many other factors that determine the outcome for house prices aside from interest rates.

“Strong population growth, tight rental markets, home equity gains, low stock on market and an undersupply of new homes have offset the significant reduction in borrowing capacities and deterioration in affordability that came with substantial interest rate tightening,” Ms Creagh said.

Since the first interest rate increase in May 2022, national home prices have cycled through their 17th consecutive month of growth, now up 6.2%.

Perth recorded the highest growth over the past two years, with prices jumping 28.5% since May 2022, outpacing the growth seen in the preceding two years (+27.4%). In the same period, stock on market fell 36.0%, fuelling a strong seller’s market with fewer choices for buyers.

Regional SA (+24.4%), Adelaide (+21.0%), regional WA (+20.8%) and Brisbane (+14.4%) were also top-performing markets, with tighter stock creating more competitive selling conditions.

Ms. Creagh noted that markets that outperformed largely avoided the 2022 price downturn, as strong demand and tight supply insulated values from the decline in borrowing capacities and offset the downward pressure from substantial interest rate hikes.

The weakest markets for price growth saw large lifts in stock for sale. In Hobart and regional Victoria, the reversal in growth relative to before interest rate rises was most significant.

Fewer buyers had consistently more choice, lessening competition, with total listings up 69.4% and 79.2% respectively, causing prices to fall 8.8% and 4.0% since May 2022.

The report highlighted that there have only been six periods since 1990 when year-ended nominal home price growth has been negative, with downturns never greater than 10% in year-ended terms. In each instance, the drivers were broader than just interest rate increases leading to price declines.

Ms. Creagh said that while major shifts in monetary policy and the wider economic environment clearly influence house prices, recent market developments have highlighted that interest rates are not the only factor affecting home price growth.