What factors sustained house price growth?
In the two years since interest rates began to rise sharply in May 2022, supply and demand dynamics have overshadowed the most substantial interest rate tightening on record, which has led to the worst affordability in at least three decades.
According to the PropTrack Market Insight report, home prices have remained resilient, defying expectations of declines due to reduced borrowing capacities – a trend that has continued into 2024.
Perth recorded the highest growth over the past two years, with prices increasing by 28.5% since the first interest rate hike. It was the only market where growth since May 2022 outpaced the preceding two years, which saw a 27.4% increase. During the same period, the stock on the market fell by 36%, creating a strong seller’s market with fewer choices for buyers.
Other top performing markets included regional South Australia (24.4%), Adelaide (21.0%), regional Western Australia (20.8%), and Brisbane (14.4%). These areas also experienced tighter stock, leading to more competitive selling conditions.
PropTrack noted that markets that outperformed largely avoided the 2022 price downturn. Strong demand and tight supply insulated values from the decline in borrowing capacities, counteracting the downward pressure from significant interest rate hikes.
Conversely, the weakest markets for price growth saw significant increases in stock for sale. In Hobart and regional Victoria, the reversal in growth relative to pre-interest rate rises was most notable. With total listings up 69.4% and 79.2% respectively, prices fell by 8.8% in Hobart and 4% in regional Victoria since May 2022, with the increased availability of homes reducing competition among buyers.
“From mid-2022, as interest rates climbed and borrowing capacities fell, many expected house prices to follow suit, but home prices have proved resilient in the two years since interest rate tightening began,” said Eleanor Creagh (pictured above), senior economist at PropTrack. “However, performance has varied across the country.
“Interest rates began to quickly rise in May 2022, and after 425 basis points of tightening, national home prices have cycled through their 17th consecutive month of growth, now up 6.2% since May 2022.”
Creagh explained that while rising interest rates typically lead to lower home prices, other factors have played a significant role in maintaining price growth.
“Strong population growth, tight rental markets, home equity gains, low stock on market, and an undersupply of new homes have offset the significant reduction in borrowing capacities and deterioration in affordability that came with substantial interest rate tightening,” she said.
“Stock for sale has consistently shrunk in the top performing markets which has driven more competitive market conditions amid stronger demand and continued to fuel price rises in 2024.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
