Australian house prices continue to climb after RBA rate cut

[SYDNEY] Australian home prices climbed for a fourth straight month, driven by a second interest rate cut by the country's central bank and expectations more will follow later this year.
The Home Value Index advanced 0.5 per cent in May, with every major city recording a rise, property consultancy Cotality, formerly CoreLogic, said on Monday (Jun 2)). Darwin was the top gainer, climbing 1.6 per cent, followed by Perth which rose 0.7 per cent. The bellwether market of Sydney was up 0.5 per cent and Melbourne increased 0.4 per cent.
'The continued momentum we're seeing across almost all markets is no doubt being fuelled by rate cuts – both those that have already happened, but also potential cuts in the coming months,' said Tim Lawless, research director for Cotality. 'With interest rates falling again in May, we are likely to see a further positive influence flowing through to housing values in June and through the rest of the year.'
Financial market pricing implies the Reserve Bank of Australia (RBA) will cut three more times this year to bring the cash rate to 3.1 per cent, from 3.85 per cent now.
The national dwelling value was about eight times the household income at the end of last year, highlighting affordability constraints while home-loan serviceability was also at an all-time high, the Cotality data showed.
A major factor supporting house price growth across the country is a chronic under-supply of homes. The newly re-elected government of Prime Minister Anthony Albanese has promised steps to address a once-in-a-generation housing crisis by building more homes and providing financial incentives to first-home buyers.
While home prices gained in May, the monthly pace of rental growth eased to 0.4 per cent following three months of 0.6 per cent increases, according to Cotality. The largest capital markets of Sydney and Melbourne are among the softest, the data showed.
The slowdown comes despite rental vacancy rates being below 2 per cent as affordability constraints and slowing migrations ease some of the demand pressure.
'Even if there are few vacant properties available for rent, it's hard to see how rental values can continue to record a strong rise off already high prices, especially with wage growth now slowing,' Cotality said. 'Larger households may be forming as a result, such as share homes and multi-generational living arrangements, taking some pressure off demand.' BLOOMBERG

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