BENGALURU: Average home prices in Australia will rise more than 6 percent this year on tight supply, before moderating slightly in coming years, according to a Reuters poll of property analysts. Home prices recouped all their 2022 losses and gained more than 8 percent last year, suggesting the highest interest rates in 13 years barely made any dent in a consistently hot housing market, which boomed around 25 percent in 2020-21 when base rates were close to zero.

The Reserve Bank of Australia (RBA) raised its benchmark cash rate from 0.10 percent to 4.35 percent in the space of about 18 months, yet the low supply of affordable housing, along with robust population growth, has prevented average house prices from falling sharply.

While that may be good news for property owners, the recent rally in house prices will make it more difficult for first-time home buyers. The RBA is not expected to reduce rates this year and is forecast to cut by just 75 basis points in 2025. Home prices were expected to rise an average 6.3 percent nationally this year, according to the Aug. 20-29 Reuters poll of 13 property market analysts, faster than the 5.3 percent rise predicted in a May survey. That outlook was largely driven by expectations of strong price growth in some state capitals.

“I see consistent growth in the next couple of years, but no boom. The growth will be underpinned by our very strong migration and the fact we’re not building enough dwellings,” said Michael Yardney, founder of Metropole, a real estate advisory firm. “Property markets are always fragmented based on local factors. But what has surprised many analysts is the strong performance of Perth, Adelaide and Brisbane. It’s a combination of more people, strong wages, and up until recently, relatively cheaper properties.”

Home prices in those three cities were expected to rise by 22 percent, 14 percent and 12 percent, respectively, in 2024. In Sydney, Australia’s biggest city, prices were forecast to rise 5 percent; in Melbourne, they were predicted to fall 0.4 percent. At a national level, average prices are expected to rise 4.3 percent in 2025 and 4.5 percent in 2026, the poll showed.

“There’s no short-term solution to fixing the Australian housing market or affordability ... Owning a house will remain a luxury good for many and we think renting is probably going to increase its dominance, as it has over the last decade or so,” said Johnathan McMenamin, senior economist at Barrenjoey. “Even once we get interest rates coming off their peaks, there isn’t enough housing in Australia for the population we have and we think that will continue to put upward pressure on house prices.” Relatively high mortgage rates and a short supply of affordable homes are expected to force many would-be first-time buyers to keep renting despite it eating up a relatively large proportion of their earnings. Rents have increased nearly 40 percent over the past five years in Australia, according to data from CoreLogic. Average urban home rents will rise 5-7 percent over the coming year, according to the median view of eight economists in the poll. – Reuters