Surfers Paradise 
Recent Consumer Price Index (CPI) data revealing a 4.4% inflation rate for May has raised concerns about another RBA cash rate increase and its effect on the housing market. The monthly CPI indicator showed inflation increasing, with the ‘trimmed mean’ annual inflation measure rising to 4.4%, up from 4.1% in April. This uptick could prompt another RBA rate hike.
Resilience of Housing Values Amid Higher Interest Rates
Despite higher interest rates, the Australian housing market has shown resilience. From May 2022, national home values initially fell by -7.5% but started recovering from January 2023. By November 2023, home values had risen 4.6% higher than in May 2022. Several factors contribute to this trend:
- Low Supply vs. High Demand: Tight labour markets, pandemic savings, and limited construction output have kept supply low while strong population growth has driven demand.
- Buyer Profiles: Current buyers have higher deposit sizes and may be less reliant on debt.
- Variable Rate Mortgages: Buyers might be anticipating future rate reductions, expecting mortgage rates to decline over time.
Signs of Slowing Demand
Although housing values rose 1.8% in the June quarter, this is slower than the 3.3% rise the previous year. Demand is skewed towards cheaper markets, with Perth and Adelaide leading growth.
A 25 basis point rise in August would push monthly repayments on the median dwelling value over $4,000, making purchases less affordable and widening the mortgage premium over renting. This could weaken demand for home purchases relative to renting.
Likelihood of an August Rate Rise
The RBA has shown a low tolerance for further inflation increases, but there’s no certainty of an August rate rise. Quarterly inflation figures, labour market reports, and retail sales data will also influence the decision. While major banks don’t anticipate another rate rise yet, housing purchases are expected to slow as economic conditions weaken and affordability constraints increase.
Labour force conditions are deteriorating, with job vacancies dropping, slower employment growth, and a rising unemployment rate. The household saving ratio has also weakened, impacting savings buffers and deposit accumulation for prospective buyers.
By Eliza Owen, Head of Research at CoreLogic Australia.
