Higher interest rates in a normal property cycle would cause prices to fall as buyers have less borrowing power. But that was negated by several factors, which distorted the market in 2024.
The sheer demand for housing in the face of chronic undersupply cancelled the effect of higher rates on the property market in 2024.
The primary reason was the chronic and sheer imbalance between the supply and demand for homes in Australia. This was driven by a tight rental market pushing more renters into buying, rapid population growth due to a peak in immigration and the ongoing trend of smaller household formation – a hangover from the pandemic.
Toth said not only has Victoria been more open to new housing development, partly due to its more forgiving geography than Sydney with its harbour, the state government also implemented land taxes for investors and second-home owners, driving them out of the market. Barrenjoey head of economic forecasts Johnathan McMenamin said pandemic savings, extra hours worked and the mountain of fixed-rate mortgages saved households from selling off, which prevented an avalanche of supply coming onto the market.“Meanwhile, the demand side remained pretty strong from the additional people in the country but also from a reduction in the number of people per household,” McMenamin said.
“The type of buyer has changed where the typical borrower has shifted further up the income distribution ,” he said. “In that sense, housing has become more of a luxury good.”
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