Why house prices will rebound quickly once interest rate hikes stop

Home prices are likely to rebound once interest rates stop rising and some new immigrants decide to buy homes as the influx fuels a rental crisis, experts say.

Australia’s annual net immigration in the year to September 2022 was 303,700 people – a 15-year high – bringing the total population to over 26.1 million.

This was the largest increase abroad since late 2008 and includes skilled migrants, family reunions and international students.

The number of immigrants was also significantly higher than the October budget forecast of 180,000 for 2022-23 and the 235,000 forecast for 2024-25.

Tim Lawless, head of research at property data group CoreLogic, said higher immigration would likely help property values ​​recover once the Reserve Bank of Australia halts rate hikes.

An overall population growth of 1.6 percent was back to pre-pandemic levels, new data from Statistics Australia showed.

By comparison, New Zealand’s population grew by just 0.2 percent over the same period, while the US population grew by 0.4 percent last year, with one expert blaming a surge in international students for Australia’s rent crunch.

Property prices are likely to rebound once interest rates stop rising as Australia experiences one of the fastest population growth rates in the world and immigration hits record highs, experts say (pictured is an auction in Strathfield, a suburb of Sydney).

Mr Lawless explained that despite the problems an influx of immigrants could cause, it could also help property prices recover as new migrants look to buy rather than enter the struggling rental market.

“The increase in permanent and long-term migrants could be another factor supporting the stronger market conditions,” he said.

“While the majority of housing demand from overseas migration is likely to flow into the rental market, given low vacancy rates, we may see a higher than average proportion of long-term or permanent migrants choosing to buy rather than rent.”

Westpac now expects the Reserve Bank of Australia to suspend rate hikes in April.

The bank’s chief economist, Bill Evans, is forecasting a key interest rate of 3.85 percent instead of 4.1 percent in May as financial market worries worry the RBA.

“The biggest change since the RBA board meeting in March has been the unfavorable developments in global markets,” he said.

Bob Birrell, the president of the Australian Population and Research Institute, said higher numbers of international students have caused annual net immigration to Australia to increase and is the main cause of a rent crisis, particularly in Sydney and Melbourne.

Australia’s annual net immigration rate was 303,700 in September 2022 – a 15-year high – taking the total population to over 26.1 million

“Just over 50 per cent of this migration in Australia ends up in Sydney and Melbourne and they will need rental accommodation,” he told Daily Mail Australia.

“This is currently a decisive factor in the rental price crisis.

“The Labor Government is caught here: it is expressing concern for the well-being of young Australians looking for rented accommodation, but at the same time it is hugely increasing the demand for this scarce housing.”

The Sydney suburb of Randwick, near the University of New South Wales, has an extremely low vacancy rate of just 0.8 per cent, data from SQM Research showed.

Commonwealth Bank senior economist Belinda Allen said Australia’s population growth has returned to pre-pandemic levels, with net immigration rising by 106,000 in July, August and September last year – a new quarterly record.

“Given the flow of long-term and permanent net arrivals from overseas, we are not surprised to see a record increase in net emigration abroad,” he said.

Bob Birrell, the president of the Australian Population and Research Institute, said the higher number of international students has caused the increase in annual net immigration in Australia and is the main cause of a rental crisis in Sydney (Randwick queue pictured) and in Melbourne in particular

Immigration has been the main source of Australia’s population growth as the birth rate fell and Covid deaths rose.

The net overseas migration figure of 303,700 was based on 536,900 permanent overseas migration arrivals minus 233,200 permanent departures.

Australia’s strong population growth of 1.6 per cent occurred even though the natural increase – or births minus deaths – was 18.1 per cent weaker than a year earlier.

Sydney’s housing market is already benefiting from higher immigration, with the median house price rising 0.3 percent in February, despite the Reserve Bank raising interest rates for a ninth straight month this month.

But prices are still 14.7 percent weaker than a year earlier, when cash rates were still at a record low of 0.1 percent, with the median home value still expensive at $1,217,308.

Australia’s immigration growth rate of 1.6 percent dwarfed New Zealand’s 0.2 percent rate and the US level of 0.4 percent (pictured is a crowded train in Sydney)

The RBA raised interest rates for the tenth time in March, taking them to an 11-year high of 3.6 percent.

Despite this, property values ​​in Sydney were up 0.5 percent in the first half of March, while values ​​in Melbourne and Perth rose 0.2 percent.

Queensland had Australia’s strongest population growth of 2.2 percent, with 114,400 new residents moving there, including many from other states seeking better weather.

By comparison, 108,700 people moved to New South Wales, which showed a growth rate of 1.3 percent as high levels of overseas immigration coincided with existing residents relocating to other states.

Victoria attracted a similar number with 108,400 new residents but had a faster pace of growth of 1.7 percent.

Western Australia also experienced above-average population growth of 1.8 per cent as 50,400 people moved there.

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