“Supply is really the number one factor in the residential property market right now,” insists REIA president Hayden Groves, who believes that unless more housing becomes available, rising interest rates won’t reduce national home values.
Speaking on a recent episode of The Smart Property Investment Show, the man at the helm of the Real Estate Institute of Australia (REIA) said the national supply crunch is undoing the negative implications of the Reserve Bank of Australia’s (RBA) cash rate hiking cycle.
Despite the housing market spending the majority of 2022’s back half within an aggressive downswing, which saw prices across the board drop 5.3 per cent last year, the largest drop off since 2008’s global financial crisis, recent data from research centre CoreLogic points to a strengthened market recovery over recent months.
The firm’s Home Value Index (HVI) rose 0.6 per cent in April, its first increase in 10 months, while May saw national home values jump 1.2 per cent, the highest rise since November 2021.
Recently rising prices have occurred against the backdrop of the RBA’s resumption of its rate hiking cycle following the brief reprieve an April cash rate pause offered consumers. And while Mr Groves admitted the latest shock rate rise delivered in June has “taken the wind out of the sails” in the Australian property market, he explained that “we haven’t really seen a significant impact” of the cash rate rises, aside from in Tasmanian capital Hobart.
The primary reason the Australian property market has remained relatively unscathed by persistently rising rates is the strenuous lack of stock the Australian housing market.
“When you have a market of constrained supply, the RBA can do what it likes with interest rates,” he said, adding “it doesn’t seem to impact too significantly on people’s desire to have and need a roof over their head”.
This is evidenced by the recent momentum of the national auction market, with clearance rates having remained above 70 per cent for nearly two months, as opposed to 12 months ago when, following the initial turbulence birthed by the first few cash rate increases of this current cycle, clearance rates strained to rise past 50 per cent.
In Mr Groves’ eyes, such strong results highlight an “appetite for buyers at the moment to secure their homes”.
He noted it is not just owner-occupiers driving this increased demand, with investor interest increasing over recent months given they “generally only ever buy in a rising market or where they feel as if there is some upside”.
He draws the point consistently back to supply, especially given the current climate where, outside of Hobart and Canberra, a chronic undersupply of properties exists in Australia’s major cities, further driving prices up.
“Until that [supply] really starts to change and we start to see a bit more stock come on, this low-supply environment that we’re in will probably continue to put upward pressure on prices despite the RBA doing its best to curb our enthusiasm,” he said.
Moving forward, the REIA president expects the national property market to begin evening out, especially with 600,000 extra migrants forecast to arrive on Australian shores by the end of next year, many of whom are expected to settle in Australia’s more affordable capital cities, such as Perth.
Casting a gaze away from the economic drivers of Australian property, Mr Groves declared “there’s a lot of upside” in the market at the moment, largely driven by “this inability to get more supply into the market quickly”.
“[This] is inevitably going to continue to have upward pressure on price for the foreseeable future. I can’t see it going away,” he concluded.
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