Australia’s housing market has surged by $140 billion in early 2023 amid an extraordinary rebound in property prices that’s underpinning a rapid recovery in household wealth levels.
Australian Bureau of Statistics (ABS) figures published on Tuesday revealed the total value of residential dwellings reached $9.8 trillion over the March quarter, an increase of 2.6 per cent.
The average price of residential dwellings rose $28,700 to $881,200 nationwide, the ABS said.
It’s all down to a faster-than-expected rebound in property prices over the March quarter, with CoreLogic figures tracking an upwards turn in markets nationally since February and into May.
That’s despite ongoing interest rate hikes squeezing the borrowing power of potential buyers, with an undersupply of listed property and surging population growth underpinning the rebound.
And because property is typically the biggest asset on a household balance sheet, the rebound is driving a recovery in family wealth levels, adding $300 billion over the March quarter alone.
My Housing Market chief economist Andrew Wilson said the increases will likely continue, with key capital city markets like Sydney, Melbourne and Brisbane now firmly in an upwards swing.
“This is another confirmation that markets are rebounding,” Dr Wilson said.
“There’s still some way to go before they’re back to where they were a year ago.
“When we get back to where they were, the market will need to absorb the real cross-winds of higher rates and higher wages.”
Property prices rebounding fast
Dwelling values increased over the March quarter in every state and territory except for Tasmania, the Northern Territory and Canberra.
Average prices rose 2.1 per cent to $1.15 million in New South Wales, the most expensive market.
Prices were up 0.1 per cent to $898,000 in Victoria and up 0.4 per cent to $752,000 in Queensland.
However, average values are still lower in Victoria and Queensland than they were over the September quarter last year.
The same cannot be said for Western Australia and South Australia, which as the graph (above) shows are now firmly above where they were six months ago, suggesting a strong recovery.
Melbourne lagging behind
With average values rising just 0.1 per cent in Melbourne compared to a much stronger result in NSW, attention is turning to why Melbourne property appears to be lagging behind Sydney.
CoreLogic research director Tim Lawless said on Tuesday that the gap between property prices in Melbourne and Sydney, which blew out during COVID-19, is still quite stark.
“The gap has closed a little since [April 2022] however Melbourne’s median house value was 29.6 per cent behind Sydney’s in May 2023, the dollar equivalent of roughly $382,500,” he said.
“Every capital city other than Canberra – the country’s second most expensive capital for houses – has significantly closed the house value gap to Melbourne.”
Rates to determine housing future
Dr Wilson said the future of property prices will be driven by where the Reserve Bank takes interest rates later this year, with economists now suggesting further hikes could take the cash rate target to 4.6 per cent.
Such an increase could see unemployment rise to 5 per cent, said National Australia Bank chief economist Alan Oster.
“While inflation has clearly peaked, and we (like the RBA) see inflation returning to the band by 2025, the extended period of inflation above target amidst a tight labour market poses the risk of stronger wage and price expectations becoming imbedded,” Mr Oster said on Tuesday.
Higher rates will be difficult for the economy, Dr Wilson said, with the potential for a downturn that could weigh on the housing market.
“It looks like the RBA has become more dogmatic in terms of controlling inflation,” Dr Wilson said.
“They’ve signalled it will be a bit tougher with rates going forward and that they’re looking for a significant improvement in inflation.”
The Reserve Bank will hand down its next interest rate decision on July 4.
