Australian housing prices set to surge
Australian housing prices may surge due to pent-up demand and low borrowing costs, triggering strong price growth in many areas.
Australia’s housing market is poised for a “slingshot effect,” where pent-up demand triggers strong price growth in many areas. Population growth and the country’s housing shortage continue to support underlying demand, despite some buyers holding back.
Falling borrowing costs could be the catalyst for this effect, as confidence and borrowing capacity improve, sidelined buyers may return quickly, pushing prices higher.
The slingshot effect occurs when potential buyers delay their purchases, leading to price falls, even though there’s an underlying shortage of housing. As they hold off, pent-up demand grows, much like a slingshot being pulled back.
Eventually, the slingshot will be fired, causing a sharp price bounce and booms in locations where prices have been falling. This phenomenon has occurred before, such as after the Global Financial Crisis of 2008.
Following the 2008 crisis, prominent economists predicted a housing market crash, leading to concerned buyers and falling prices in 2009. However, when buyers returned, the slingshot effect took hold, and every capital city experienced strong price growth in the years that followed.
Housing prices in Sydney and Melbourne shot up by over 30% after 2009, with every capital city seeing double-digit price growth. The trigger was a fall in interest rates during late 2008 to early 2009, and the current situation is similar, with underlying demand for housing remaining strong.
The housing shortage is increasing, and the slingshot of pent-up demand is being pulled back further. When interest rates fall, the slingshot is fired, and another housing market boom will follow.
The trigger for the slingshot effect is a real or de-facto fall in interest rates. Although the RBA hasn’t lowered interest rates, banks are effectively cutting rates with attractive low introductory interest rates and cashback offers to motivate buyers.
As the slingshot effect takes hold, housing prices are expected to rise sharply. They will be driven by pent-up demand and the underlying shortage of housing. The exact timing of the price bounce is difficult to predict, but the current market conditions suggest that it will happen soon.
