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Property prices could rise 10% by 2025: Here’s why

An increase in migration and low housing supply could lead to a new property boom.

A composite image of an Australian property with a for sale sign out the front and Australian currency.
Property prices could well be on their way to another boom. (Source: AAP / Getty) (Getty/AAP)

Despite the 10 straight interest rate increases from the Reserve Bank of Australia (RBA) from May 2022 to March 2023, which has seen official rates rise by 3.5 per cent, property prices have not only stopped falling, but they appear to be on the rise.

Both the Corelogic and PropTrack data show that nationwide house prices are on the way up, which is confusing many analysts who were looking for prices to drop by 15, 20 or even 30 per cent on the back of interest rate increases.

The peak-to-trough change in house prices was 9 per cent, according to Corelogic, and 4 per cent, according to PropTrack, which is not too dissimilar to prior cycles where house prices had fallen in Australia.


According to Corelogic, house prices rose 0.6 per cent in March and moved higher in the first part of April. Using the high-frequency data, house prices in five major cities have risen by 1 per cent from the early February low point.

The PropTrack data, which have a slightly different methodology, rose in January, February and March.

What’s driving property price changes?

As I have written many times in the past, house prices are driven by many moving factors, with interest rates having no long-run impact, rather a cyclical effect as they go up and down.

More important are demand and supply.

Demand for housing at the moment is booming. The surge in immigration and the return of international students has seen demand for housing increase. The extra half a million people have to live somewhere. They are competing with locals in the rental market, where vacancy rates are tracking at near-record-low levels and rents are rising at a strong double-digit pace.

This jump in demand is also now spilling into prices where what might be termed ‘bargain hunters’ are paying 5-10 per cent less for a dwelling now than a year ago.

At the same time, the growth in supply of dwellings is muted. Australia is simply not building enough new homes to accommodate the extra people coming into Australia. The number of building approvals for dwellings has slumped to around its lowest level in a decade.

This is a worry.

In more recent months, this has been more of an issue, with the collapse of many small and medium construction companies that have been hit by sharp increases in costs and shortages of labour to build those much-needed dwellings. These problems will erode the growth in new supply.

The simple interplay of strong demand relative to a weak supply-side response is the critical element in the recent turn in house prices.

Linked to that is the sharp increase in construction costs, which have risen by more than 25 per cent in the past two years and these costs are being passed on to home buyers. These costs impact house prices – if the cost of bricks and timber and wires and windows increase, builders will only construct new dwellings if they can recoup those costs by hiking their prices.

The other pivotal issue for house prices is the resilience of the labour market.

Wages growth has increased at the same time the unemployment rate has remained around a 50-year low. Household incomes, as a result, remain strong.

While people have a heightened level of job security and incomes are rising, they will be able to not only absorb interest rate increases but will be able to use this personal financial well-being to purchase dwellings.

A high unemployment rate would be poison for house prices, but this is clearly not the case at the moment.

What will happen to property prices over the next 18 months?

A near-term house price surge remains unlikely. With interest rates restrictive and with some rise in unemployment through 2023, the positive impact of demand and supply issues will be muted.

This suggests that house prices will go broadly sideways to slightly up for the remainder of the year. A few small ups and possible small downs are likely each month until late 2023 with nationwide prices set to rise about 2 per cent by the end of 2023.

After that, and when the RBA looks to cut interest rates perhaps before the end of 2023, the demand pressures will feed into a positive climate where prices should rise 10 per cent through 2024 and into early 2025. This seems to be a strong upswing but all it means is that the price falls from the early 2022 peak will be regained by the end of 2024 or early 2025.

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