Why house prices keep on rising in Sydney – despite 12 interest rates since May last year

House prices have risen in Sydney for the sixth straight month despite an interest rate surge because of record-high immigration.

In Australia’s most expensive capital city market, the median value rose by another one per cent to an even more unaffordable $1,333,985 in July, CoreLogic data showed.

Sydney house prices have risen in every month since February even though the Reserve Bank has, since May 2022, raised rates 12 times to an 11-year high of 4.1 per cent.

The recovery started earlier in Sydney, which receives a bigger share of new migrants with Treasury expecting a record 400,000 permanent and long-term arrivals for 2022-23.

House prices are rising as higher interest rates cause a drop in building approvals, making property an even scarcer commodity in the big cities during a time of rapid population growth.

In other major capital cities, the house prices began rising again in March. 

Melbourne house prices have been rising for five straight months, increasing in July by another 0.3 per cent to $923,881.

In Brisbane, house prices last month rose by another 1.4 per cent to $819,832.

Perth values rose by one per cent to $625,969.

Adelaide’s recovery began in April but monthly increases since then have been bigger with prices in July rising by another 1.4 per cent to $722,793.

Darwin prices rose for the third straight month in July, increasing by 0.5 per cent to $583,913.

But prices fell in the smaller capital cities that don’t receive a large intake of new migrants, with Hobart prices in July slipping by 0.1 per cent to $696,570 as Canberra prices dropped by 0.3 per cent to $958,950.

The futures market is expecting the Reserve Bank of Australia to leave rates on hold in August for the second straight month, with an increase on Tuesday regarded as a 14 per cent chance.

Even with a pause, Australian borrowers have copped the most aggressive rate rises since 1989. 

AMP chief economist Shane Oliver said immigration was fuelling a house price recovery. 

‘The rebound in prices since February this year reflects a worsening shortfall of supply relative to underlying demand for homes,’ he said.

‘Immigration has surged and is likely to exceed 400,000 this year driving the fastest population growth in 15 years at the same time that the supply of new dwellings is slowing. 

In Australia’s most expensive capital city market, the median value rose by another one per cent to an even more unaffordable $1,333,985 in July, CoreLogic data showed (pictured are commuters on a Wynyard station train)

‘This in turn accentuated very tight rental markets, forcing rents up and driving renters to consider buying earlier than they otherwise would have. 

‘At the same time foreign demand is returning.’

Building approvals in June fell by 7.7 per cent and by 18 per cent over the year, the Australian Bureau of Statistics revealed on Tuesday morning. 

While some buyers had a fear of missing out – known as FOMO – Dr Oliver said that could come unstuck if rate rises caused a recession.

‘Were the economy to slide into recession it’s likely that the government would cut the immigration intake, further reducing the underlying demand-supply imbalance,’ he said.

CoreLogic research director Tim Lawless said national home values were 5.3 per cent below the April 2022 peak, but price records were being set in Perth, Adelaide and regional South Australia.

Price falls in late 2022 and early 2023 had encouraged investors, who rent out properties, and some first-home buyers.

‘These segments tend to be more active across the middle to lower end of the pricing range where competition to purchase a home may be more intense,’ he said.