Aussie home prices set for weakest growth in four years as rates bite

By Rahul Trivedi

BENGALURU, June 4 (Reuters) - Australian home prices are set for their weakest growth since 2022 this year, as higher mortgage rates and cost-of-living pressures keep many first-time buyers out of the market, a Reuters poll of property analysts showed.

That would mark a sharp slowdown from about 10% growth in 2025 after the Reserve Bank of Australia raised interest rates by 75 basis points this year to tackle persistent inflation, squeezing affordability and demand.

Home prices fell more than 5% in 2022 when the RBA embarked on an aggressive rate-hiking cycle.

AFFORDABILITY CONCERNS

The May 21-June 4 poll showed median home prices rising 1.0% this year, with forecasts ranging from a 5.0% decline to a 7.0% gain. Analysts expect prices to rise 2.1% in 2027.

Affordability remains a concern despite slower price growth, with median home values at about A$940,000 ($670,126), roughly eight times average household income. Elevated inflation and borrowing costs are expected to continue weighing on household budgets and demand.

"There was only a short period where interest rates dropped last year and they've been increased three times this year. But that's happened at the same time other factors have also affected the housing market, including reduced consumer confidence because of concerns about rising inflation and the cost of living, and then there was the Iran war," said Michael Yardney, founder of Metropole, a real estate advisory firm.

"This does affect the housing market because people don't make big decisions like buying a new home, moving house, or buying an investment property when they're not confident."

Price trends are expected to vary widely across major cities. Median forecasts showed Sydney and Melbourne prices falling 2%-3%, underperforming Adelaide, Brisbane and Perth, where gains of around 6%-11% are projected this year.

The Albanese government has introduced tax reforms aimed at reducing intergenerational inequality, replacing the 50% capital gains tax discount with inflation-indexed taxation and curbing negative gearing.

Some economists warn the measures could reduce rental supply, push up rents and worsen affordability, particularly for first-time buyers.

Urban rents are forecast to rise 4%-6% over the coming year, up from 3%-5% in a March Reuters poll, outpacing Australia's 4.2% headline inflation rate in April.

Economists were split on the outlook for first-time buyer affordability, with five expecting it to improve and four expecting deterioration.

A similar pattern is emerging in New Zealand, where home prices are seen broadly flat this year as the Reserve Bank of New Zealand is expected to raise interest rates next quarter.

(Other stories from the Q2 global Reuters housing poll)

($1 = 1.4027 Australian dollars)

(Reporting by Rahul Trivedi. Polling by Pulkit Khanna. Editing by Vivek Mishra and Mark Potter)