House prices Sydney, Melbourne: Why real estate market still climbing despite interest rate surge

House prices in Australia are rising for the first time in a year, despite 10 consecutive monthly interest rate hikes due to higher immigration and an extremely tight rental market.

National home and unit prices combined rose 0.6 percent in March to $704,723, CoreLogic data showed.

This was the first increase since April 2022, when the Reserve Bank of Australia cash rate was still at a record low of 0.1 percent.

Australia’s largest cities, Sydney and Melbourne, also had the largest increases despite being the most sensitive to the RBA’s 10 consecutive monthly increases that have pushed the cash rate to an 11-year high of 3.6 percent.

The Commonwealth Bank and Westpac both expect the RBA to pause on Tuesday, but all major banks, including the NAB, expect at least one more rate hike by May, bringing the spot rate to 3.85 percent.

Despite those expectations, Sydney’s median house prices rose 1.5 percent to $1,230,581 last month, while Melbourne’s equivalent value rose 0.6 percent to $898,644.

The apartment market also rebounded, with Sydney unit prices rising 1 percent to $776,780, while Melbourne prices rose 0.4 percent to $588,528.

Gareth Aird, Commonwealth Bank’s head of Australia’s economy, said the increases reflected higher immigration and a one percent rental vacancy rate, despite the hefty rate hikes.

“Any conventional house price model indicates that further declines are to be expected, but in many ways these are unconventional times,” he said.

‘The number of newly built homes is decreasing, while population growth has risen sharply as a result of net overseas migration.

‘As a result, the rental market is red hot and vacancy rates are at a very low level throughout the country.

“This undoubtedly supports house prices and complicates the forecasting process.”

Tim Lawless, research director at CoreLogic, said higher-income migrants who can’t find a place to rent would choose to buy instead.

“With rental markets so tight, it’s likely we’ll see some spillover from renting to buying, although, with mortgage rates this high, not everyone who wants to buy will qualify for a loan,” he said.

“Similarly, with net overseas migration at record levels and rising, there is a chance that more permanent or long-term migrants who can afford it will skip the rental phase and buy a home quickly simply because they cannot find a place to rent.”

The Treasury expects 350,000 new migrants to move to Australia in 2022-2023, followed by another 300,000 in 2023-24, equating to 650,000 people over two financial years.

Australia’s net annual immigration in the year to September 2022 was 303,700 people – a record for 15 years.

The population growth rate of 1.6 percent was one of the highest in the world, with this increase also including the permanent arrival of skilled, family reunion and humanitarian migrants, along with international students classified as long-term arrivals.

By July 2025, Australia is expected to have accepted 900,000 new migrants, the majority of whom are likely to move to Sydney and Melbourne based on the experience of the past two decades.

Sydney already has a very tight rental vacancy rate of 1.3 percent, compared to Melbourne’s 1.1 percent and Brisbane’s 0.8 percent, data from SQM Research showed.

Rapid population growth has made housing unaffordable for an Australian who earns an average full-time salary of $94,000.

The Australian Prudential Regulation Authority is concerned if someone owes the bank more than six times their income.

With a series of rate hikes, many more borrowers will spend more than 30 percent of their take-home pay on mortgage payments, known as mortgage stress.

Canstar calculated that a single individual purchase in Sydney, where the median house price is now $1,230,581, would now need to earn $239,480 to avoid mortgage stress, if they had a 20 percent down payment of $246,116.

In Melbourne, where the median house price is $898,644, someone would need to earn $174,898, with a mortgage payment of $179,729.

That drops to $150,250 in Brisbane, where the average house price is $772,020, requiring a $154,404 mortgage deposit.

In Perth, where the median house price rose 0.5 percent to $593,385, a more moderate salary of $115,478 is needed to avoid mortgage stress, with a down payment of $118,677.

Canstar editor-in-chief Effie Zahos said that while a rate cut would be necessary to ensure a further recovery in home prices, rising prices in March would make things more difficult for first home buyers.

“It’s aspiring homebuyers who can be caught off guard right out of the gate by mortgage stress, with higher real estate prices accompanied by higher interest rates,” she said.

“Rising real estate prices confirm the fact that a single earner cannot buy a house on his own wages without incurring significant mortgage stress.”

In this month’s state election in New South Wales, political parties opposed to high immigration did not do so well.

While immigration is a federal matter, state governments must build the infrastructure to cope with a growing population.

Firebrand One Nation leader Mark Latham, who has spoken out against high immigration, was elected to another term in the upper house, but none of his running mates stood.

The Sustainable Australia Party saw its vote fall by 0.6 per cent to just 0.86 per cent, with outgoing leader William Bourke blaming the left-wing media for not giving his group attention.

“We face a wall of silence from the mainstream media, especially the print media SMH (Sydney Morning Herald)/Age, ABC and Guardian, where our most likely (environmentally conscious) audience lives,” he told supporters in an email. -mail.

‘Why? Both because of the smear campaign and the fact that we don’t fit into their ideological and/or commercial (property advertising) agendas.’