The Australian housing market has shown significant resilience, with national home values rebounding to reach new record highs in March 2025. This recovery follows a short period of decline and marks the second consecutive month of growth in the national index. The 0.4% increase in values over the month was broadly based, encompassing most capital cities and regional areas. This turnaround is partly attributed to improved buyer sentiment following the February interest rate cut, which slightly enhanced borrowing capacity and mortgage serviceability.
Capital City Performance:
The performance across capital cities was largely positive, with Darwin leading the pack with a 1.0% increase in home values for the month. Sydney and Melbourne, which hold significant weight in the national index, have shown a positive trend over the past two months, indicating a potential turning point after recent dips. However, Hobart was the only capital to experience a decline in March, with values falling by 0.4%. The mid-sized capital cities, including Brisbane, Adelaide, and Perth, continue to see value increases, although the pace of growth has moderated, particularly in Perth.
Regional Markets Outperformance:
Regional housing markets continue to demonstrate strength, outperforming the combined capital cities with a 0.5% increase in values compared to the capitals’ 0.4% rise. This trend suggests that the appeal of regional affordability remains strong for buyers. However, the growth trajectory appears to be converging as capital city markets regain momentum.
Rental Market Dynamics:
The rental market in Australia is experiencing record high values, with the national rental index increasing by 0.6% in March. This strong rental growth is pushing gross rental yields for the combined capitals to their highest level since 2019, making investment properties increasingly attractive. However, the annual growth rate of rental values is showing signs of slowing.
Factors Influencing the Market:
Several factors are at play in shaping the current housing market conditions:
- Easing Monetary Policy: The anticipation and initial impact of interest rate cuts are contributing to improved sentiment and a slight increase in borrowing capacity.
- Cost of Living Relief and Income Growth: Potential increases in household disposable incomes due to cost of living relief measures and a tight labor market are expected to support borrowers.
- Housing Affordability and Supply: Despite the positive growth, housing affordability remains a significant challenge, potentially limiting more substantial upswings in values. Supply constraints continue to be a major issue, with new dwelling approvals showing only a tentative recovery and completions projected to remain well below the required levels to meet demand.
- Population Growth: Lower population growth compared to previous periods is dampening overall housing demand.
- Housing Credit Policies: Risk-averse lending practices are also contributing to contained value growth.
Future Market Outlook:
The outlook suggests that a material upswing in housing values is unlikely in the near term. A more probable scenario is a gradual increase in values, influenced by further potential interest rate reductions and the persistent challenges on the supply side. The market is expected to remain sensitive to economic conditions and policy changes.