The State of the Australian Housing Market: An In-Depth Analysis

Introduction
In this article, we will dive deep into the state of the Australian housing market, analyzing various factors that influence
its current condition. We will explore the insights shared by Dr. Andrew Wilson, the Chief Economist of My Housing
Market, during the Wilson Weekly 2 – Money Mentor Podcast. By examining the economic performance, unemployment
rates, migration patterns, and auction clearance rates, we will gain a comprehensive understanding of the housing
market’s resilience and potential challenges.

Economic Performance and Unemployment Rate
The Australian economy has shown remarkable performance, as evidenced by the record-low unemployment rate of
3.5%. This figure, the lowest since the early 1970s, reflects a booming economy and a tight labor market. Dr. Wilson
emphasizes that if someone is currently unemployed, it is likely because they choose not to work, given the abundance
of job opportunities available.

Furthermore, the high participation rate, which measures the proportion of the population in the workforce, adds to the
positive outlook. This record-high participation rate indicates that more people are actively entering or re-entering the
workforce, including older individuals who may have previously retired. The increase in labor force participation is
expected to drive higher wages and subsequently contribute to household wealth.

Migration and Housing Demand
To meet the growing demand for labor, the Australian government has accelerated its migration program.

The fast tracking of skilled visa applications and the influx of skilled workers will further increase demand for housing,
especially in major cities such as Melbourne and Sydney. These cities, which are currently experiencing a slight decline
in prices and lower vacancy rates, will likely benefit from the surge in migration.

Net interstate migration has also played a significant role in shaping the housing market. Queensland, in particular, has
seen a record net migration of over 50,000 people in 2021. The exodus from New South Wales and Victoria, driven by
factors such as lockdowns and perceived safety, has contributed to the strong demand for housing in Southeast
Queensland. Other capitals such as Brisbane, Adelaide, and Perth are also experiencing robust price growth, indicating
a healthy market.

Interest Rates and Housing Market Outlook
While interest rates are expected to rise in response to increasing inflation, the Reserve Bank of Australia (RBA) is
closely monitoring various factors, including the labor market and the housing market. The RBA aims to strike a
balance between maintaining full employment and controlling inflation within the target range of 2-3%.
Although interest rates will continue to rise, it is essential to consider the historical context. Current mortgage rates
average around 4.8%, significantly lower than the rates during previous tightening cycles in 2011 and 2007, which
reached 8% and 10% respectively. This suggests that homeowners are in a stronger position to absorb the impact of
higher rates.

Auction Clearance Rates and Market Activity
Auction clearance rates serve as an early indicator of market activity and sentiment. Despite being in the midst of
winter, which typically slows down the housing market, recent auction clearance rates in Sydney and Melbourne have
remained balanced at around 60%. These rates indicate that there is still a six out of ten chance of successfully selling a
property under the hammer, underscoring the resilience of the market.
Although the number of auctions last weekend was lower compared to the same period last year, it is important to
consider the context. The previous year saw a flood of properties entering the market as it recovered from lockdowns,
resulting in record-high auction numbers. When compared to pre-COVID figures, the current auction numbers are still
relatively high, indicating a solid market.

Cost of Construction and Renovations
One of the challenges faced by the housing market is the rising cost of construction. Labor and material costs have
been increasing at an accelerated rate, potentially impacting the affordability of new homes. Builders and developers
are facing difficulties in managing rising construction costs, leading to the postponement or cancellation of projects.
This trend highlights the need for more housing supply to meet the demand.
Renovations, alterations, and additions have also been affected by the high cost of construction. Homeowners may find
it more financially viable to explore other options, such as buying existing properties rather than renovating. These
factors contribute to the overall dynamics of the housing market and influence decision-making processes for both
buyers and sellers.

Conclusion
In conclusion, the Australian housing market remains robust, driven by a strong economy, low unemployment rates, and
high demand for housing. While interest rates are expected to rise, the market is in a favourable position to absorb the
impact. Auction clearance rates indicate a balanced market, with significant pent-up demand waiting to be released.
The rising cost of construction presents challenges, emphasizing the need for increased housing supply. By
understanding these factors, both buyers and sellers can make informed decisions in navigating the Australian housing
market.