Home prices are recovering, but rate hikes could still cause homeowner values ​​to fall

The cost of buying a home appears to be rising again, at least for now, an unwelcome change for those looking to buy a property.

The average cost of buying a home in Australia rose 0.13 per cent in March to a median current level of $732,000.

House prices have fallen since the Reserve Bank launched its inflation-alignment campaign in May 2022, causing interest rates to rise for ten straight months.

The average cost of buying a home in Australia rose 0.13 per cent in March to a median current level of $732,000

Capitals saw price increases in 2021 and parts of 2022 before taking a turn. Source: PropTrack

In response, Sydney home prices fell 6.03 percent last year to an average of $994,000, while Melbourne saw a 5.79 percent drop with median home values ​​now at $789,000, according to the latest PropTrack Home Price Index.

However, March saw a slight increase in prices, with house prices up 0.27 per cent in Sydney, 0.12 per cent in Melbourne, 0.24 per cent in Perth and 0.10 per cent in Adelaide.

Brisbane, Hobart and Darwin bucked the trend, with prices falling 0.06 percent, 0.43 percent and 0.10 percent respectively.

While rate hikes drive prices down by reducing the amount of money borrowers can obtain, increasing immigration, higher rents and a pick-up in wage growth are driving demand up.

A lower number of new entries also increased the values ​​according to PropTrack.

So far this year, Sydney has seen the biggest rise in value of any capital city market as fewer homes in the market support property prices

In March, home prices rose 0.12%, with a weaker flow of new listings fueling competition among potential buyers. As a result, sellers have benefited from less competition from other suppliers

After rising in January and February, Brisbane property prices recorded a small fall (-0.06%) in March, although the flow of new listings remained weak. Source: PropTrack

House prices in Perth rose 0.24% in March, hitting a new price high

With inflation rates still much higher than the RBA’s 2-3 percent target and unemployment at relatively low levels, the bank could opt for another rate hike, but a pause is on the horizon, according to PropTrack economist Eleanor Creagh.

“Concerns over persistently anchored inflation expectations and the board’s commitment to weathering the challenge of high inflation make a 25 basis point hike next week more likely than not. But it’s close and the end of rate hikes is in sight, whether the Reserve Bank pauses this month or next,” she said.

“If the RBA hikes interest rates by 25 basis points next week, it will be the 11th straight hike and will take the interest rate to 3.85%, the highest since April 2012.

“This would likely be the point at which the RBA would pause its tightening cycle and assess the impact of the tightening already done.”

However, prices could still fall in the coming months as mortgage holders feel the full impact of rate hikes.

“This is particularly the case in this tightening cycle, where so many borrowers have benefited from record low fixed rate mortgages throughout the Covid era without feeling the full impact of rate hikes,” Ms Creagh said.

“Hence, consumer spending is expected to slow sharply in the coming months as the lagged impact of interest rate hikes that have already taken place kicks in.”