Interest rates are high and home prices continue to rise, but buyers are not being deterred. In fact, more people have stepped on to the property ladder over the past year, despite affordability challenges.
According to the latest CoreLogic data, home prices climbed 6.0% in the 12 months to October, taking the national median to a record-high $810,000.
Home values in both capital city and regional locations are also at their peaks, rising 5.9% and 6.3% respectively.
New home loan volumes and values climb
These record-high prices do not appear to be standing in the way of Australians’ property ownership dreams, though. Pexa’s latest Mortgage Insights reveals that 137,186 new home loans – 96% of which were for the purchase of residential properties – were issued in the September quarter. This is a 16.2% increase from the same quarter in 2023.
The value of new home loans has also increased. Australian Bureau of Statistics (ABS) head of finance statistics Mish Tan said that, over the past 18 months, the average size of approved loans has grown for both owner-occupiers and investors.
In the 12 months to September, the value of investor loans rose 29.5% to $11.6 billion. This growth has also been driven by higher numbers of loans being approved, she said.
“Investor activity remains at high levels in response to the recent growth in house prices and rental yields.”
According to the ABS data, a total of 18,400 new investor home loans were issued in September 2024, up from 15,300 in September 2023.
9 reasons why high interest rates and property prices are not deterring buyers
Property prices
- Future value: Many buyers view property as a stable, long-term investment that appreciates over time, regardless of short-term price fluctuations.
- Fear of missing out: In a competitive market, buyers often worry that waiting could lead to even higher prices or limited availability.
- Limited housing supply: High demand and limited housing supply in Australia are driving prices up. Those who aspire to own property may, therefore, choose to buy despite high prices, especially if rental costs are equally high.
- Lifestyle factors: Many people buy homes based on life events or personal milestones, rather than purely financial motivations.
- Inflation hedge: Property is often seen as a hedge against inflation as it tends to increase in value alongside inflation. Some buyers are motivated to invest in real estate as a way to preserve or grow their wealth, even at high prices.
Interest rates
- Personal circumstances: Major life changes – such as job relocation, expanding a family or changes in personal relationships – may necessitate buying a home. For some, their life circumstances outweigh financial conditions.
- Future rate changes: With interest rates forecast to fall in 2025, property prices may increase amid increased buyer activity. Furthermore, some buyers may plan to refinance their loans later to a lower rate; the higher rate at purchase is, thus, seen as temporary and manageable in the short term.
- Housing stability: High rental costs or the desire to avoid the instability of renting can motivate buyers to own their home, even with a higher interest rate.
- Property scarcity and competition: Limited housing supply, especially in desirable areas, can drive buyers to act quickly regardless of rates. Waiting may lead to more competition and even higher prices, so some prefer to buy now rather than risk being priced out later.
When is the best time to buy?
Buying a property when you’re ready is generally better than trying to time the market. After all, market trends are hard to predict and interest rates fluctuate. And as property is typically a long-term investment, short-term changes have less impact over time.