Australia’s property market is currently grappling with similar challenges to New Zealand. From high interest rates to the cost of living as well as issues around housing supply, Australia has also been faced with a slowdown in activity. Michelle Ciesielski Head of Residential Research at McGrath says a big contributor has been higher interest rates. While they didn’t quite reach the same height as New Zealand’s Official Cash Rate, Ciesielski says it peaked at 4.35% and hasn’t budged since.

“The last time we saw an interest rate move was in November 2023, and that was in an upward direction.”

“It’s certainly been longer to return to a desirable level of inflation so as a result the Reserve Bank of Australia has held off cutting interest rates which has left the property market in a bit of a holding pattern.”

Currently headline inflation in Australia sits at 2.4%, sitting comfortably within its Reserve Bank target range of 2 - 3%. Underlying inflation - which excludes items that have a particularly low or high inflation rate has also dipped to 3.2%, a strong indicator that a long awaited cut to interest rates could be on the cards in February.

“We have a significant number of economists predicting a 25 basis point rate cut on February 18, that could bring the all important number down to 4.10%. But at the same time the Reserve Bank has been incredibly cautious, so it will be interesting to see what they do on the day.”

While Australia’s interest rate peak was well below New Zealand’s, Ciesielski says the sustained high level has really eroded away at the country’s economy.

“We have certainly seen household savings take a hit by holding at this height of interest rate, and the overall cost of living has only added to household pressures.”

“The flow on effect of that has made people a little reluctant to make any move in the housing market right now.”

WHAT’S HAPPENING WITH SUPPLY AND PRICING?

Ciesielski says apart from interest rates, supply is also having a big impact on the market.

“We are seeing a record low number of new homes being approved, but also being built throughout the country.”

“We also still have elevated construction costs, so there's a lot of pressure on developers.”

Because of that people are holding onto their homes for much longer, leaving buyers with fewer options.

“We're seeing a lot of the older generation who aspire to downsize are actually unwilling to sell because newer, smaller options aren’t coming onto the market. So the problem is two fold because those established homes aren’t becoming available, and we’re not seeing a lot of new homes being built.”

“That’s putting a lot of pressure on prices and although overall pricing has come down slightly overall, that supply issue is going to remain a pressure point.”

Ciesielski says across Australia’s major cities the current median house price is $1.13 million (NZD), while in Sydney it’s $1.4 million (NZD).

“But when we look at smaller cities like Darwin, it’s $599,000 (NZD). So we’ve got quite a diverse median house price.”

“Overall prices have increased by 5.7% in the last 12 months with our smaller cities driving a lot of that growth.”

She says prices in Perth crept up 21%, and in Adelaide they grew by about 14%.

HOW BUSY IS THE MARKET?

McGrath is following four main buyer groups across the market right now including downsizers, families, first home buyers and investors.

Ciesielski says downsizer activity has been limited by the unavailability of smaller, newer homes as well as elevated taxes when buying a home.

“It’s not that easy to sell in and out of homes here in Australia, so this hurdle when you go to buy something else is deferring that natural progression of trading to a smaller residence.”

Ciesielski says the flow on effect of that has stalled family buyers because those larger homes are being held onto for longer.

“Many are now considering moving into the suburbs, on the periphery of the city or interstate, because there's not a huge amount of opportunity for them to do otherwise.”

As for first home buyers, Ciesielski says they often compete with investors.

“Because first home buyers target that entry-level price point, and we are now seeing investors come back to the market.”

“There’s a lot of hurdles for first home buyers to overcome too. With the cost of living many need to rely on the bank of mum and dad to save for a deposit, and even though they are dealing with entry-level pricing, this deposit is still really high.”

With interest rates, pricing and supply constraints keeping the market relatively subdued, Ciesielski says there’s another element that’s also hampering activity.

“We've got a federal election coming up so naturally in the lead up we don't see many big decisions being made in the economy or the property market. There is a chance we could see a different government deployed with policies that are a lot different to what we have been used to in the last few years.”

So what does that all mean for the frontline?

“There's still an air of optimism in the market, despite slower activity.”

“We're still seeing a modest number of auctions clearing. It's certainly trending lower than what we were seeing last year, but there's still an appetite there given we saw an uptick in the clearance rate in the first weekend of February.”

But even though there’s subdued action, Ciesielski says the speculators are still there, and buyers are definitely circling.

“Because we're talking about the potential of an interest rate cut in February, people are watching the market very closely and they’re doing their research and getting ready to get into the market.”