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Three reasons property prices are still rising

Despite the Reserve Bank of Australia (RBA) raising the cash rate at a record pace, property prices have managed to shrug off the higher borrowing costs and again started to increase.

There are several factors as to why property prices rise, but at a national level, it’s clear the supply and demand fundamentals are still bullish for property.

Tight supply

One of the common themes we’ve seen over the past few years has been the tight level of supply. During COVID, listings were tight and demand remained strong. As interest rates started to climb, some of the demand started falling away, however, listings didn’t rise.

According to CoreLogic, the number of capital city homes advertised for sale is almost 20% lower than this time last year and 26.4% below the long-term average. Regional listings are also sharply lower, tracking 32.9% below the previous five-year average.

The tight supply levels have been one of the main factors that has propped up prices over the past few months. Demand for high-quality listings remains higher and is leading to strong competition for properties.

Record immigration

Immigration levels fell away dramatically when the government closed the borders. Prior to COVID, the government would typically bring in between 200,000-250,000 migrants every single year.

Since late 2022, the government has increased that number to 400,000-500,000 which is leading to a record increase in demand for property. These numbers have also been inflated by the huge increase in students coming to Australia to study.

This has dramatically increased the level of demand for homes, as new arrivals add to the pool of buyers.

Tight rental markets

The surge in immigration has also put rental markets under more and more pressure. Across the country, vacancy rates in many states are sitting at or near all-time lows.

The demand from overseas migrants is incredibly high, and these people will typically rent before they buy. This is leading to upward pressure on rents in most locations, with the latest data from CoreLogic showing that rents have surged 11.5% in the past 12 months.

Normally rental growth leads to property price growth. As renters who are having trouble finding a suitable rental property will look to buy if it is more financially viable to do so. This leads to upward pressure on property prices.

For the most part, the surge in property price growth has been led by people simply looking for a home to live in. With few choices on the market and ever-increasing numbers of people in Australia, this will continue to put upward pressure on property values.

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