Why Aussie homebuyers are ignoring high interest rates

Home prices continue to rise despite the cost of living crisis, economic uncertainty and high interest rates. This is why.

The rate of home price growth has slowed and sales listings have increased, but median Sydney dwelling prices closed off the financial year at a new peak of $1,107,000.

Resilient Sydney dwelling prices now sit 6 per cent above June 2023 levels. That’s 12 per cent above their November 2022 low.

The price is 38 per cent higher than March 2020 as the pandemic got under way, according to PropTrack.

The Sydney house median is at $1,428,000 and it is $818,000 for apartments.

So far the increase in properties hitting the market this year has been met with strong buyer demand, driving further price growth.

Although the number of inquiries per listing nationally has fallen by 6 per cent relative to a year ago, it remains at an elevated level.

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High interest rates aren’t deterring homebuyers. Picture: Sam Ruttyn

Other capitals have largely followed suit with the exception of Melbourne, where dwelling prices have remained flat with a fall of just 0.07 per cent over the past 12 months for a median of $803,000, according to PropTrack.

Perth has led the way with an astounding 22.52 per cent growth over the past year for a median of $713,000. Prices in Brisbane are up 14.14 per cent over the same period for a median of $840,000, Adelaide’s annual home price growth is at 14.61 per cent for a $759,000 median.

The national dwelling median now sits at a record $787,000.

CHOICE IS SLOWING HOME PRICE GROWTH

As buyers have enjoyed more choices, the pace of price growth has eased.

Eleanor Creagh, the senior economist at PropTrack, suggests strong population growth, tight rental markets and home equity gains have bolstered buyer demand despite interest rates sitting at a 12-year high.

“Interest rate stability has sustained buyer and seller confidence, while the continuous rise in home prices is motivating many to overcome affordability challenges and transact with the expectation of further growth,” she says.

Melbourne price growth has remained flat in stark contrast to other capital cities.

“As a result, demand is outpacing supply, pushing prices and rents higher and offsetting the higher interest rate environment.

“From July, tax cuts will lift household incomes, increasing borrowing capacities and buyers’ budgets, further supporting price growth.”

TAX CUTS COULD SPUR HOMEBUYERS

The stage three tax cuts see a homebuyer earning $100,000 a year getting a $2179 tax cut, boosting their borrowing capacity by about $25,000, while a buyer earning $150,000 will save $3729, allowing them to borrow about $37,000 more.

Aussie mortgage broking chief operating officer Sebastian Watkins noted the tax cuts could make a significant difference for a couple with a dual income with two dependants earning a combined taxable income of $280,000 as their borrowing capacity will rise by $75,345 on a mortgage with a 6.28 per cent interest rate in the 2024-25 financial year.

Some modelling suggests the tax cuts will be the equivalent of at least two 25-basis point interest rate cuts.

Of course expectations of actual interest rate cuts have recently been pushed back from this year to the middle or late 2025, with Cameron Kusher, the director of economic research at PropTrack, suggesting it is hard to know how much of the recent price growth has been due to those now dashed rate cut expectations.

But PropTrack still expects that there will be continued price growth this financial year with an uptick in Sydney of between 3 and 6 per cent.

Forecasters are closely watching unemployment levels along with dwelling approvals data, as they are significant factors in the market direction.

Originally published as Why Aussie homebuyers are ignoring high interest rates