Why Australian house prices are set to soar 30% by 2023?

  • January 24, 2021 12:19 AM AEDT
  • Kunal Sawhney
    Kunal Sawhney
    CEO Kunal Sawhney
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    Kunal Sawhney is founder & CEO at Kalkine and is a richly experienced and accomplished financial professional with a wealth of knowledge in the Australian Equities Market. Kunal obtained a Master of Business Administration degree from University of T...

Why Australian house prices are set to soar 30% by 2023?

The lowest-ever interest rates might drive the house prices up by 30% during the upcoming three years, says Reserve Bank of Australia.

Despite a recession triggered by COVID-19 in the ‘epic’ year of 2020, the rate of the houses surged 3.7% along with the values soaring 7.1% in regional areas, as per the CoreLogic data.

In fact, property values on beach havens like Byron Bay and Noosa surged by 16% in one year.

As more and more people began working from home, the economic crisis and the interim halt to immigration coincided with record prices in 39 out of 88 regions in Australia.

Related Read: What will Australia’s housing prices look like in 2021?

Why did RBI cut the interest rates?

In November 2020, the Reserve Bank of Australia, chopped off the interest rates to a record low of 0.1%. Also, three out of the four major banks were offering fixed home loan rates at less than 2%. This phenomena had made news too.

This is the reason the RBI has predicted a 30% leap in house prices over next three years.

This assumption is largely based on the modelling that shows the effects of one percentage point cut to the cash rate.

Do not miss: Why is RBA keeping interest rates at a record-low?

The Rate Cut

Between October 2019 and November 2020, the RBA cut interest rates by 0.9%. Now, the RBI is engaged in radical quantitative easing, where it is buying government bonds to lift the economy.

In the month of December, the interest rates were kept on hold and RBA governor Philip Lowe reiterated that the cash rate would remain as it is for some more time. Lowe had said that given the outlook, the board would not be able to raise the cash rate for at least three years.

The lockdowns and the employment

The unemployment rate in Australia went up to reach record levels in the middle of 2020. Induced by the lockdowns and closed borders, the unemployment rate soared to a 22-year-high of 7.5% in July from 5.1% in February.

The RBA, at that point of time, stated that interest rates would not be increased until the unemployment level receded to around 5%. But the economists are not expecting that to happen till 2023.

House prices in the regional areas

The regional areas located by the coast are in hot demand. The average house price at Austinmer, in Wollongong’s north, surged by 14.9% to $1.438 million in 2020. This data is on the basis of a CoreLogic analysis of all the houses in the suburb and not just the ones that got sold.

When it comes to Byron Bay located on the far north coast of New South Wales, the figures are even better with mid-point house rates rising by 16.1% to $1.9 million.

Situated on Queensland’s upper Sunshine Coast, Noosa was also a hot spot with its prices soaring up by 17.3% to $1.45 million.

The value of the apartments also gained momentum as the average price range jumped by 16.7% to touch $632,190. 

In the year 2020, in Sydney, Australia’s biggest property market saw a 4% annual rise in house prices, despite five direct months of decline from May to September, with average values now at $1.015 million.

In Darwin, there was 11.9% spurt in values while in Hobart, average prices rose by 7.7%. Adelaide values soared up by 5.9%.

Only Melbourne moved downwards in 2020 in terms of price of the houses. Here, the median house prices fell by 2% to reach $799,980.

Robust show by regional Australian dwelling areas

As per the December home value data, combined regional dwelling market rose 6.9% in value in a year; this growth rate is more than thrice the rate of the combined capital cities.

But the more interesting fact is the ‘homecoming’ that some areas have shown in the longer term. This can be experienced while looking at the average annual compounding growth rate during last ten years.

In NSW, 10 year annualised growth rates were 5.0% across Illawarra, and 4.5% across both the Newcastle Lake Macquarie region, and the Southern Highlands and Shoalhaven region. In Victoria, Geelong has a long run annualised growth rate of 4.1%.

Across Queensland, the Gold Coast and Sunshine Coast saw long term growth rates align more closely with average increases across the capital city sub markets (1.5%). But further to this, the 10 year annualised growth rates have surpassed the increases in every other capital city and regional sub market across the sunshine state.


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