House prices make the steepest gain since 2021, Domain report says

So much for the bust! Property prices have regained much of their former value, according to Domain’s latest House Price Report. After five consecutive quarters of decline, the combined capital unit and house prices have surged at the fastest pace since 2021. 

High home loan costs led much of the downturn in 2022, slashing -5.6% off the average house price. But tight supply and surprisingly strong demand have squeezed combined capital house prices back up again, recovering $35,000 of their $60,000 in lost value. So why has the property price cooldown been so short-lived?

Sale stock is -22% below the five-year average in Australia’s combined capitals, thanks to sellers pulling their listings. With so few homes to choose from, what buyer demand has existed this year scrambled up asking prices, despite the high cost of home loans and the high cost of living. 

“I don’t see the housing market paying much attention to what’s going on in the rest of the economy,” says Mozo banking expert Peter Marshall. 

“The government these days rely too much on house prices going up to keep people reasonably happy and hopefully keep them in government, so they won’t do anything to upset that arrangement – and that’s the key, isn’t it?”

Domain chief economist Nicola Powell writes that the upward trend in property prices shows a shift in power towards sellers, rather than buyers, which could spell more bad news for borrowers already struggling to save for a home loan deposit or cope with the cost of mortgage repayments.

“Discounts on asking prices and the time a property spends on the market are beginning to reduce across some cities, showcasing the shifting balance to sellers,” explains Powell.

However, Powell concedes that once interest rates peak and housing confidence improves, the price growth could be tempered – especially if we fall off the fixed rate mortgage cliff. 

Fixed rate mortgages have shielded many borrowers from the wrath of Reserve Bank rate hikes over the last year, but many of these terms are set to expire in the near future. This would wash a new wave of borrowers onto variable rates much higher than the interest rate they fixed years ago during the pandemic-era lows. 

The cliff could potentially cause mortgage-stressed borrowers to sell their homes, increasing supply and reducing demand. As Marshall says, “There will be winners and losers there.” Otherwise, he claims rate hikes will have little effect on the buyers inflating the property market. 

“Buying a house is a long-term proposition, and the future of rates is probably – for the people who can afford to handle their repayments now – a relatively minor issue,” explains Marshall. 

“I don’t think that rates at this level are doing a whole lot to change people’s behaviour in the property market.”

Indeed, the July cash rate pause gave the property market some stability, but the RBA likely has more tightening to do to rein in inflation. Until the chaos is over, rising rates and prices will continue to pull homeownership out of reach for many of Australia’s first-home buyers. 

Dreaming of owning property? Read more on three unconventional ways into the property market if budgeting is an issue. 

Compare low interest rate home loans in the table below.