Construction Industry in Australia Soars to New Heights with Record Crane Activity
Australia’s construction industry is on an exhilarating journey marked by a remarkable…
14 April 2023
Experts predict that the recovering housing market in Sydney and Melbourne will continue to grow, but not at the same rate as during the pandemic-era boom due to the potential threat of higher interest rates and inflation. Independent economist Stephen Koukoulas forecasts that Sydney house prices will increase by 4% this year and nationwide by 3%, with demand outstripping supply. Meanwhile, SQM Research predicts that Sydney prices will rise between 5-9%, Melbourne by 1-5%, and nationwide by 3-7%. During the previous boom, Sydney prices increased by 27.7%, Melbourne by 17.3%, and nationwide by 28.6%.
Koukoulas believes that prices will remain stable for the next six months and may increase by 10% by 2024-2025 based on supply and demand. He attributes the sustained recovery to strong immigration numbers and building approval data suggesting that supply-side responses are not being met. However, if the Reserve Bank of Australia hikes rates aggressively, the upturn may be curtailed.
Shane Oliver, AMP Capital’s chief economist, notes that the supply-demand imbalance is currently driving the market higher, but the lack of rate cuts will limit any price increases. Oliver suggests that the rise in immigration, combined with a drop in supply, is one of the primary drivers of the earlier-than-expected recovery in prices.
CoreLogic’s head of research, Eliza Owen, notes that the increase in migration coincides with low listings across the purchase and rental markets, with vacancy rates around 1%. This surge in migration has probably had a spillover effect on purchasing demand more quickly than historically normal, especially for those who can afford to buy instead of renting.
First-time buyers are the first to return to the market as market values bottom out, according to CoreLogic analysis. In February, first-time buyer lending increased by 0.9%, despite an overall decrease in housing finance. The increased demand for homes from first-time buyers may signal a more sustained market recovery, as more Australians are moving from renting to buying homes due to insecurity in the rental market.
In summary, the housing market recovery in Sydney and Melbourne is likely to continue, but price increases may not match those seen during the pandemic-era boom. The surge in immigration and falling supply are among the key drivers of the earlier-than-expected recovery in prices, with first-time buyers leading the way. However, the potential threat of higher interest rates and inflation could curtail the upturn.