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Why do property prices keep rising?

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Over the past year, interest rates have risen at the fastest pace in four decades. So how is it that we're seeing strong property price growth again? 

May brought the highest monthly price growth seen since 2021 according to CoreLogic figures, a trend that has been ramping up since the beginning of 2023. 

Can the market continue towards another boom or is another shift around the corner? 

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Do rate hikes typically slow the property market?

Looking at the historical data, it does appear clear that rate cuts stimulate price growth. 

The ability to borrow more money with lower mortgage repayments tends to drive buyer demand and send prices north. 

It's a little less clear when looking at rate hikes but, very broadly speaking, a rate-tightening cycle does tend to slow the market somewhat as buyers' borrowing capacity reduces and the economy slows. 

Broad trends show rate tightening cycles correspond with suppressed property price growth while rate cuts often bring in price growth. Source: ABS

In 2022, rising interest rates were the primary factor behind a wider correction across the country where prices fell from all-time highs. 

That trend has been bucked in 2023 as rates have continued to rise yet property values are surging. 

There are some unusual reasons behind this unusual dynamic.

Listings have remained well below average

There has been a severe shortage of listed properties across the country since September 2022, the spring selling season that never took off. 

Many sellers have opted to wait on the sidelines as rates rise, generating more buyer competition for what few properties are on the market. 

New listings in May were nearly -25 per cent below the same month in 2022. Source: CoreLogic

As demand has outstripped dwindling supply, auction clearance rates have been driven up and homes are selling faster.

CoreLogic's Research Director, Tim Lawless, explained that the "disconnect between available supply and housing demand is a central factor placing renewed upwards pressure on housing values."

Eleanor Creagh, Senior Economist at PropTrack, expects we may see more sellers come back to the market this spring selling season, driving listings back up. 

Even so, she said, "While the pace of price rises is likely to slow as the listings environment changes… some of the factors precipitating stronger housing demand will remain."

The rental crisis and increased migration are boosting demand

Reduced borrowing capacity is a direct consequence of rising interest rates. Since the cash rate has risen a full 4 per cent so far, buyers' borrowing power has been reduced by around 30 per cent. 

That would typically mean demand declines, but there are some key factors in the current housing cycle that are adding upward pressure on buyer demand. 

For starters, Australia's rental markets are in crisis, with vacancy rates hovering around record lows and asking rents surging. 

National rents have been climbing at around +10 per cent annually. Source: CoreLogic

With rental affordability so poor and competition between tenants so fierce, SQM Research Managing Director Louis Christopher believes that there is some overflow into the purchasing market. 

"An increasing number of tenants have been turning themselves into First Home Buyers, adding upward pressure on property prices," he said. 

Record levels of immigration are compounding demand on both the rental and purchasing sides, and supply can't currently keep up, driving the price of accommodation up further still.

Can property prices continue to rise? 

Price forecasts for the remainder of 2023 have been mostly conservative despite the current surge in growth. 

That caution stems from a few places including uncertainty around the RBA's next steps around interest rates. 

CoreLogic's Eliza Owen noted that inflation is still proving hard to tame and rising property prices may factor into the RBA's future decisions. 

"While established home and residential land values do not directly feed into the CPI housing indicator, there may be upside risk to inflation from rising home prices due to potential wealth effects," she said. 

She suggested that June's rate hike could "take some steam out of the housing market," though "like many economic trends since the pandemic, the housing market has defied expectations."

The other point of caution is around listings. If this year's spring selling season brings an influx of new listings to the market, that could reset the supply and demand balance, reigning in price growth. 

The 'fixed rate mortgage cliff' also poses a risk to housing prices. Mr Lawless proposed that the risk seems to be on the low side, though. 

"It would be naive to think mortgage arrears won’t rise through the second half of the year, however a material lift in motivated sellers seems unlikely," he said. 

While there is uncertainty around the future of Australia's property markets, current conditions look well-suited to sellers. 


1. Reserve Bank of Australia, 'Interest Rates and the Property Market', 19 September 2022

2. CoreLogic News, 'CoreLogic Home Value Index surges with strongest monthly growth since November 2021', 1 June 2023

3. PropTrack newsletter, 'National home prices increase for the fifth consecutive month', 2 June 2023

4. SQM Research Weekly Newsletter, 'Rental Vacancy Rates Rise to 1.2%', 16 May 2023

5. CoreLogic News, 'Steam to come out of housing market recovery as RBA rate-hiking cycle rolls on', 6 June 2023