Positive signs for housing market as RBA pauses rates and states offer support

The housing market is showing positive signs following the Reserve Bank of Australia’s (RBA) decision to keep the cash rate on hold at 4.35%, and various state governments announcing measures to support the property sector in their recent budgets.

PEXA Group’s Chief Economist, Julie Toth, said the RBA’s confirmation of another interest rate pause is welcome news for current and prospective mortgage holders, who will avoid further pressure on their household incomes from higher loan repayments.

“Evidence from bank spending data and consumer confidence surveys indicate that homeowners with a mortgage remain under intense pressure from stubborn core inflation and high interest rates,” Ms Toth said.

She noted that persistent inflation, despite weak GDP growth and household consumption, means the cash rate is unlikely to fall until core inflation is more firmly anchored to the 2-3% target band.

Australia’s housing market stabilised throughout 2023 and has remained resilient into 2024 in terms of sales activity and pricing in most locations.

PEXA’s Property Insights Report showed that residential settlement transaction volumes increased in the first quarter of 2024 compared to the same period one year earlier, across the mainland states and across most price ranges.

Refinancing activity among existing mortgage holders remains elevated as borrowers seek to reduce their costs, with PEXA’s Refinance Index confirming that refinancing volumes in early 2024 were around 40% above those observed during 2019 and 2020.

Ms Toth pointed out that property owners and buyers will need to navigate various changes to property-related taxes, charges, and grants announced by state governments in their recent budgets.

She welcomed the NSW Government’s plan to build 30,000 affordable, social, and rental homes on surplus government land, which will help to boost housing supply once completed.

However, Ms Toth noted that increases to foreign purchaser and owner surcharges, as well as a freeze on the land tax-free threshold in NSW, may reduce the attractiveness of the state as a place to invest in property and potentially decrease the number of homes available for rent in the private sector.

In contrast, home buyers in Queensland and South Australia are set to receive greater direct assistance from their state governments through increased stamp duty concessions and exemptions for first home buyers.

“These announcements in Queensland and South Australia will help first home buyers compete in extremely tight local housing markets and may even attract first home buyers – who are overwhelmingly younger skilled workers – from other states,” Ms Toth said.