AUSTRALIA: Supply/Demand Imbalance Driving Housing Affordability Deterioration
The Australian housing market continues to look robust driven by strong demand and lacklustre new supply. Depressed housing affordability is currently not weighing on the market with the number of new first time home buyer loans rising 10.8% y/y. The RBA doesn’t seem concerned and has not mentioned the risks from positive wealth effects and dropped dwelling investment from the May statement. When easing starts, it is likely to have limited impact on housing affordability given current imbalances.
- The RBA revised down dwelling investment projections to -3.2% y/y for Q2 2024 but Q4 was higher at +0.2% y/y for Q4. 2025 and 2026 were revised down.
- May CoreLogic house prices rose 0.8% m/m to be up 9% y/y and 24% above trend. They are now 13.8% above the January 2023 trough. The smaller capitals are seeing stronger rises due to “extremely low levels of available supply”, according to CoreLogic.
- Strong demand is also reflected in the rental market with vacancy rates very low and Q1 rents rising 7.8% y/y. It is also seen in strong sales growth, which was 39.3% y/y in April across the 5 states.
Source: MNI - Market News/Refinitiv
- On the supply side, Q1 real dwelling investment fell 0.5% q/q, second consecutive quarterly fall, to be down 3.4% y/y. Building approval data is not signalling the needed recovery with the number of April approvals 19% below pre-pandemic levels and up only 3.5% y/y.
- As a result, housing is now around 10% overvalued based on the house price-to-rents ratio and affordability (HAI) is its worst since our series began in 1980. Higher mortgage rates have contributed to deteriorating affordability but they have been stable over 2024 and Q1 nominal disposable income rose 1.1% q/q, yet there has been a 2pp deterioration in our HAI since Q4 reflecting higher home prices.
Source: MNI - Market News/Refinitiv
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