How Australia compares internationally on home affordability and interest rates

Australian property has shown greater resilience against higher interest rates than many other real estate markets around the world, according to a new report. However, Australia has also not lifted its official cash rate as much as other countries during the global battle against inflation. Our cash rate of 4.35 percent is significantly lower than the United States’ rate range of 5.25 percent to 5.5 percent and only higher than a few nations such as France, South Korea and Japan.

Research by Australian real estate network PRD shows most property markets around the world have gone through the same market cycle since the pandemic ended. In most countries, there was a brief period of strong growth in home values as the world re-opened between 2021 and 2022, followed by declining prices as cash rates increased.

“Compared to other countries around the world, Australia has proved itself to be a more resilient market against successive cash rate hikes,” said PRD chief economist Dr Diaswati Mardiasmo. “Our property prices did not decline as sharply as New Zealand, Canada, Hong Kong, the UK, and South Korea.

“In terms of affordability, internationally, we sit in the middle. New Zealand, Canada, the USA, and Hong Kong are still more expensive than Australia, but the UK, South Korea, Japan, and France are more affordable.”

The report points out that this is one of the reasons why Australian property is still attractive to many international buyers and investors. For Australians, housing affordability has deteriorated by 15 percent over the past five years, according to the research.

“This means those who bought a property in the past five years are ‘worse off’ economically and in greater danger of mortgage stress, as opposed to those who bought property 10 to 20 years ago,” the report said.

Historically, it is unusual for Australian home values to rise at the same time as interest rates. This only occurred due to an imbalance between supply and demand. Dr Mardiasmo said other countries such as New Zealand, Canada, France, South Korea and Japan also have a housing supply deficit. Meantime, supply levels are improving in the UK, US and Hong Kong, she said.

For now, the Reserve Bank of Australia is holding the cash rate steady while monitoring the impact of its 13 rate rises between May 2022 and November 2023 on inflation. During a press conference earlier this month, Reserve Bank Governor Michele Bullock said a rate cut was unlikely this year.

Dr Mardiasmo said a stable cash rate creates a catch-22 in the market. “On one hand it provides stability, hence many believe that now is an ideal time to purchase. On the other, a stable cash rate has created ‘sticky buyers’ that no longer feel the need to rush …”.

Other countries are also keeping their cash rates steady, including Hong Kong, the US, New Zealand, the United Kingdom and South Korea. Some countries have begun cutting their cash rates, including Canada and France. Japan is the outlier after commencing a cash rate hiking cycle in March. This followed almost 14 years of negative or zero interest rates. The rate in Japan is now 0.25 percent.