Factors affecting property prices in Australia


The Reserve Bank’s hiking cycle since May of last year has caused mortgage rates in Australia to increase by over 100%, affecting homeowners differently based on their property ownership and mortgage status. While property prices have decreased slightly in the last year, they remain higher than pre-pandemic levels, with homeowners who purchased more recently facing a greater impact of rising interest rates compared to those who have experienced equity gains without the burden of higher mortgage payments. In addition, loan sizes vary across the country, with New South Wales and Victoria having the most expensive average loan sizes.

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The relative impact of rising interest rates on property prices also varies across the country, with more expensive states experiencing larger price declines. Furthermore, the development of new homes in Australia has been hindered by high interest rates, which have made it more expensive to finance new developments. Despite the increasing population and the demand for more housing, development activity has decelerated. Over the past two years, the number of approved dwelling units has decreased, reaching its lowest level in over a decade in January, and dwelling commencements have also decreased. This, coupled with rising building input prices, labor and material shortages, and longer construction timelines, has led to decreased development activity.

The consecutive interest rate hikes have also impacted homebuyers’ borrowing capacity, leading to a decrease in property prices. The reduced borrowing power has caused buyers to spend less, resulting in a fall in prices by 3.9% nationally, with Sydney and Melbourne experiencing the largest declines. However, factors such as low supply levels due to fewer properties being listed for sale and a slowdown in development activity may prevent property prices from falling too far in the future.

Despite the decline in the overall property market, affordable suburbs and regions in Australia are performing well compared to other areas, with prices in many of these areas holding steady or even increasing. This trend is likely to continue, as more buyers are turning to these areas due to decreased borrowing capacities and prices in certain locations becoming too high. It is important to note that while interest rates are a significant factor in the property market, they are not the only factor affecting it.


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