The Australian Property Paradox - Rising Values in a High-Interest Environment

You might be scratching your head, wondering how Australia's housing market is experiencing a surge in property values amidst what seems to be a storm of unfavourable conditions. With the cost-of-living crisis, low consumer sentiment, and multiple hikes in the cash rate, it's a genuine paradox. But as you dive deeper, you'll uncover the key drivers that are supporting this unexpected recovery.

Let's embark on this enlightening journey together. In today’s blog post, I’ll be exploring the three key drivers that have led the Australian property market to remain resilient despite the challenges faced by the broader economy.

The Current Market

First and foremost, you need to grasp the current state of Australia's housing market. Imagine this: despite the challenges you're hearing about daily, the recovery trend in property values is evident. In fact, Australia's housing market growth regained significant strength in August. But what's fuelling this resilience? You might be surprised to learn that several factors are at play, even in the face of seemingly unfavourable growth conditions.

Factor #1 – The Power of Overseas Migration

Have you ever considered the impact of people movement on property values? One of the primary drivers supporting the housing market's recovery is net overseas migration. Picture this: while many Australians were leaving the country in the past, there's been a notable shift. The combination of returning overseas arrivals and a drop in overseas departures has significantly pushed the demand for housing.

To give you a clearer picture, departures from Australia were down about 25% on the pre-COVID average. Meanwhile, overseas arrivals have slightly surpassed the levels seen in 2019. This shift is not just a mere statistic; it's reshaping the housing landscape. With a persistently low average number of people per dwelling across the capital cities, the need for housing is skyrocketing. This increased demand is contributing to heightened competitiveness for properties on the market, especially when you consider that rental vacancy rates are hovering around record low

Based on the ABS data, they’ve outlined that within the 13 months after the international borders re-opened following Covid-19, 81% of Australia’s population growth was due to net overseas migration, which equated to 454,000 people in the 12 months to March 2023. To put this in perspective, the number of arrivals rose 103% to 681,000 in that 12 month period, with Western Australia being one of the biggest beneficiaries of this increase.

Factor #2 – Savings & Equity

Now, let's talk money. You might be wondering how Australians are financing these property purchases, especially in this economic climate. The answer lies in the strategic use of savings, profit, and equity from previous homeownership. Instead of borrowing more, many are leveraging their accumulated wealth to invest in property.

Here's something to ponder: even as the Australian Bureau of Statistics reported a fall in the value and volume of lending in June and July, home values continued their upward trajectory. But how sustainable is this approach? With the household saving ratio declining to 3.7% amidst high inflation and debt costs, it's a question worth considering. As you navigate your property journey, understanding these financial dynamics can offer valuable insights.

The relatively weak Australian dollar is also contributing in some ways to the ability of overseas investors and Australian expats to draw on international savings to fund property purchases in Australia.

Factor #3 – The Impact of Constrained Supply

Supply and demand – it's a fundamental economic principle you're undoubtedly familiar with. In the context of Australia's housing market, constrained supply is playing a pivotal role. Even as new listings emerge with the spring-selling season, the overall supply remains limited.

To put things into perspective for you, over the four weeks ending 3 September, total listings across Australia were approximately 136,000. This figure is 23.4% lower than the previous five-year average. So, what does this mean for you? With limited properties available and a surge in demand, it's a seller's market. If you're considering selling, now might be an opportune time.

Zooming Out

Let's step back for a moment and look at the broader context. By the end of August, the collective worth of Australian housing bounced back to a staggering $10 trillion. This milestone marked the first time the total estimated value hit double digits since June 2022. Furthermore, the national recovery in home values began in March 2023, with values increasing by 4.9% through to the end of August. This growth has offset nearly half of the preceding downturn experienced between April 2022 and February 2023.

While it's tempting to bask in the current success of the housing market, it's crucial for you to stay informed about potential future shifts. The outlook for the housing market remains shrouded in uncertainty. Economic performance is set to change, and while this might be good news for inflation and the cash rate trajectory, rising unemployment could pose risks for mortgage serviceability.

In Conclusion

Navigating the Australian property market can feel like a rollercoaster ride, especially in these unprecedented times. But by understanding the key drivers and staying informed, you can make empowered decisions. Whether you're looking to buy, sell, or simply stay updated, recognising the factors supporting the housing market's recovery is invaluable.

Remember, knowledge is power. As you continue your property journey, armed with these insights, you're better equipped to make informed decisions that align with your goals and aspirations.


To Your Financial Success!

Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd - No: 200305462G | MAS License No: FA100035-3

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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.

*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.

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