Australian Housing Market Rebounding to $10 Trillion

The Australian housing market has experienced a significant rebound, reaching a total estimated value of $10 trillion at the end of August. This marks the first time since June 2022 that the combined value has reached double digits. The increase in value can be attributed to higher median home values and an increase in the stock of housing properties.

Factors Driving the Recovery

Net Overseas Migration

One factor contributing to the rise in housing demand is net overseas migration. The combination of returning overseas arrivals and a decline in overseas departures has pushed the demand for housing higher. With a persistently low average number of people per dwelling in the capital cities, the need for housing has increased. This heightened demand has led to increased competitiveness in the housing market, especially considering the record-low rental vacancy rates.

Use of Savings, Profit, and Equity

Another explanation for the continued rise in housing values is the use of savings, profit, and equity. Some individuals may be drawing down on their savings, equity, or profits from previous home ownership to make property purchases, rather than relying on borrowing. This may explain why home values have continued to rise despite a decrease in lending volume and value. However, the sustainability of this trend is uncertain, as households may not be able to rely on savings indefinitely. The household saving ratio has declined to 3.7% due to high inflation and debt costs, compared to the COVID-record highs of 23.6%.

Constrained Supply

The total volume of housing listings remains relatively low, even as new listings have started to increase in anticipation of the spring selling season. In the four weeks leading up to September 3rd, total listings across Australia were 23.4% lower than the previous five-year average. This constrained supply has contributed to the competitiveness of the market and the upward pressure on housing values.

Can the Recovery Continue?

While the Australian housing market has experienced a consistent rise in values over the past six months, the outlook remains uncertain. Although there is an expectation that the Reserve Bank of Australia (RBA) is done hiking the cash rate, borrowing is still constrained by a high serviceability buffer. Data from the Australian Prudential Regulation Authority (APRA) shows that the weighted average home loan assessment rate is just below 9%. Additionally, mortgage lending has declined for three of the past four months according to the Australian Bureau of Statistics (ABS) housing lending data.

The economic performance is expected to unwind, which may have implications for mortgage serviceability. While this could be positive for inflation and the future trajectory of the cash rate, an increase in unemployment could pose a higher risk for mortgage holders. CoreLogic, a leading property data provider, predicts that the recent recovery trend may lose some momentum towards the end of the year. A more robust recovery in housing values will likely be limited until credit conditions loosen.

In conclusion, the Australian housing market has rebounded strongly, reaching a total estimated value of $10 trillion. Despite unfavorable growth conditions such as a cost of living crisis and low consumer sentiment levels, housing values have continued to rise. Factors such as net overseas migration, the use of savings and equity, and constrained supply have contributed to this upward trend. However, the outlook for the housing market remains uncertain, and the sustainability of the recovery will depend on various economic factors and credit conditions.

Bold: Australian housing market