Confidence Up, but Don't Expect a Boom
The interest rate cut will support housing markets, but don't expect a boom in housing prices until affordability improves.
With the average variable rate for owner-occupier loans expected to fall to around 5.81%, reducing repayments on a $750,000 loan by $81/month, the rate cut is expected to lift consumer confidence, says CoreLogic executive research director Tim Lawless.
“This combination of lower interest rates and improved sentiment is likely to support increased activity in the housing sector, given that there is generally a correlation between consumer sentiment and home sales volumes,” he says. “That said, we don’t expect a significant acceleration in capital gains. Several factors continue to constrain price growth, including stretched affordability, cautious lending practices, and the reality that interest rates remain in restrictive territory.”
Analytics by Equifax shows that pre-approval levels through mortgage brokers increased by 24% in March compared with the same time last year.
Kevin James of Equifax says the rate cut earlier this year would have encouraged many aspiring homeowners to get ready to buy.
NEW HOME SALE RISE
Sales of new homes have risen to the highest level in the past 12 months, although still not at levels to address the ongoing shortage of new dwellings across Australia.
HIA Economist Maurice Tapang says new home sales were up 16.5% in April. Low levels of unemployment, recovering real wages and elevated housing demand from ongoing population growth are boosting sales.
“New home sales data have signalled that home building may be past its trough, confirming our expectations of a pick-up in activity in 2025,” Tapang says.
The growth is being driven by the Queensland, Western Australia and South Australia markets.
“Sales have also improved in New South Wales at the start of this year, although this is coming off anaemically low levels in the last two years,” Tapang says.
Victoria did not fare so well, with new home sales declining for three consecutive months.
Auction Market Heating Up
The weather may be starting to cool, but the Australian property market is starting to heat up, with the number of properties being offered under the hammer rising.
According to Cotality figures, there are 2,395 homes scheduled to go under the hammer this week – up 34.2% from last week and 5.8% higher than at the same time last year. In Sydney alone, the number of properties prepared to go for auction this week is up 44.7%, and Melbourne has more than 1,000 properties going under the hammer for the first time in six weeks.
Cotality economist, Kaytlin Ezzy, expects the momentum to continue and is predicting that about 2,700 properties will go to auction the following weekend.
She says buyers may feel more confident as the latest cut to interest rates has increased the average Australian’s borrowing capacity by $12,000 for a single person and $23,000 for a couple.
Canstar data insights director, Sally Tindall, says when borrowing capacity increases, the winner is often the person selling the property.
FHB Accepting Help
First home buyers are making it into the market despite high levels of unaffordability, with about a third using the Australian Government’s Home Guarantee Scheme to purchase.
The scheme helps First Home Buyers who don’t have a 20% deposit to avoid expensive Lenders Mortgage Insurance.
The latest State of the Housing System report by the National Housing Supply and Affordability Council says the largest number of first home buyers using the scheme is in the Northern Territory, followed by Queensland, Western Australia, New South Wales, ACT, Tasmania, Victoria and South Australia.
It says affordability is still a major issue, with housing costs rising faster than household income, although it does predict that affordability will stabilise over the next few years and in some cases improve a little.
“The price of dwellings is forecast to rise in nominal terms, but at a slightly lower rate than forecast income growth, which implies that there will be a small decline,” it says.
WHERE IT'S CHEAPER TO BUY THAN RENT
While the pace of rental growth has eased in many cities, past increases mean there are still locations where a weekly mortgage repayment is cheaper than weekly rents.
Analysis from Ubank shows there are ten Sydney suburbs, all unit markets, where residents were financially better off buying. In Melbourne, there are 12 suburbs and in Brisbane, 21 – all unit markets.
The analysis shows it is cheaper to buy than rent in 7.7% of the suburbs analysed, and almost one in five suburbs had median mortgage repayments within $100 a week of the median rent. As is to be expected, some of the biggest gaps in buying and renting are in locations where workforces are transient, such as mining towns in Western Australia.
But the unit markets uncovered by the analysis as a whole are in capital city markets, such as Docklands, where it is $70 a week cheaper to buy.
Ubank chief home lending officer, Ray Jokhan, says customers are telling them affordability and cost of living is front of mind and they are looking at how to reduce repayments.
