The Australian property market continues to evolve rapidly just one month after the RBA's historic rate cut, with compelling evidence emerging of what some economists are now calling a property "super cycle." This week's data reveals two particularly noteworthy trends: auction clearance rates have softened slightly but remain near the critical 70% threshold, and Melbourne's resurgence as an investor hotspot is gaining traction.
Auction Markets: Steady Despite Headwinds
The latest auction data shows a slight moderation in clearance rates, with the combined capital cities slipping to a preliminary 69.6% from 69.9% a week earlier. This minor dip came as auction volumes dropped to 1,629 over the week, down from 2,749 in the previous week - a reduction largely attributed to public holidays in Victoria, South Australia and ACT, along with extreme weather in southeast Queensland.
Sydney recorded a preliminary clearance rate of 70.7% from 871 scheduled auctions, while Melbourne returned 70.5% from 496 scheduled auctions (down from 1,381 the previous week due to the Labour Day long weekend).
"That's a bit disappointing. We were expecting a little more confidence by this time following the rate cut, and it hasn't really happened." - Louis Christopher, SQM Research
Christopher observes that while sentiment has improved, with "more people at auctions," we haven't yet seen "a clear lift in buyer demand." This suggests further rate cuts may be necessary to stimulate more significant market activity, with Christopher anticipating an April cut is likely.
Key Takeaway: Despite a slight dip in auction clearance rates, both Sydney and Melbourne maintained levels above 70%, indicating underlying strength in the market even with reduced volumes.
The "Super Cycle" Thesis
Beyond the short-term auction metrics, a more profound structural shift appears to be underway in Australia's property market. Ray White chief economist Nerida Conisbee has described current conditions as a "super cycle" that will lead to a "fundamental reshaping of Australia's housing landscape."
"This transformation is being driven by shifting demographics, evolving living preferences and persistent supply constraints." - Nerida Conisbee, Ray White
While some economists remain cautious about the "super cycle" label, all acknowledge the continuing strength in the Australian property market.
The persistent imbalance between supply and demand remains the fundamental driver behind this strength. Despite years of predictions about a potential housing bust, significant price falls have failed to materialise.
"We will have fluctuations in house prices but when we have a look over the long term, the biggest fall we had was 5 per cent – a very tiny reduction in pricing, particularly compared to the enormous increases that we've seen over the past 20 years." - Nerida Conisbee, Ray White
Key Takeaway: The "super cycle" theory suggests we're entering a period of structural transformation in the housing market driven by fundamental demographic shifts and persistent supply constraints rather than cyclical factors.
Melbourne's Revival: Value Proposition Emerging
Perhaps the most significant development for investors is the growing evidence of Melbourne's market revival. After years of underperformance and investor exodus due to high state property taxes and sluggish capital growth, Melbourne is showing signs of renewed investor interest.
CoreLogic's Head of Research Eliza Owen notes that with other markets starting to hit their affordability ceilings, there's increasing anecdotal evidence of investor interest returning to Melbourne.
"[Investors are] going back to cheaper pockets of Melbourne where prices are low enough that it kind of makes sense." - Eliza Owen, CoreLogic
This shift comes as the traditional high-growth markets of recent years show signs of slowing. "A big part of the uplift in home values in the past couple of years in particular was driven by this catch-up in value of what were traditionally cheaper markets, namely Brisbane, Adelaide and Perth," Owen explains.
The numbers tell the story:
- Brisbane: values up 9.7% in year to 28 February
- Adelaide: prices increased 11.9% in year to 28 February
- Perth: properties increased 14.3% in value in year to 28 February
These substantial gains have eroded the affordability advantage these cities once held over Melbourne and Sydney.
"If you're an investor looking medium to long term, you could be buying at the bottom of the market, or buying at a discount comparatively than if you were to buy in a hot market, particularly in Brisbane." - Joel Curley, Aussie Home Loans
Curley suggests the "chunky discounts" currently available in Melbourne should outweigh the additional costs of the state's investor property taxes, particularly for data-driven investors who can claim a tax deduction for these taxes through negative gearing.
Key Takeaway: Melbourne's prolonged underperformance has created a value opportunity, particularly as other markets reach affordability ceilings after substantial gains in recent years.
The Supply Side: Signs of Improvement
Recent data also points to encouraging developments on the supply side. Australian Bureau of Statistics data shows attached housing approvals – driven by apartments rather than medium-density homes – picked up to 63,648 over the 12 months to January, up 1.5% from a year earlier. This marks the first positive reading since July 2022.
"We can call the bottom of this particular cycle for apartment approvals. When we look historically, once we've hit the bottom, there's a bit of momentum coming through." - Terry Rawnsley, KPMG
The number of new detached house approvals has also improved, picking up to 111,294 in the year to January – an 8.6% gain on a year earlier and the seventh month of year-on-year increase.
However, significant challenges remain. The Urban Development Institute of Australia warns that Australia will undershoot the 1.2 million national housing accord target by 400,000 homes without further incentives and faster planning processes.
Key Takeaway: While supply-side indicators are showing early signs of improvement with the first positive apartment approval reading since July 2022, significant structural challenges remain in meeting housing targets.
Interest Rate Outlook
Looking ahead, most economists expect further rate cuts this year, which should provide additional stimulus to the property market. The big four banks' forecasts vary somewhat:
- ANZ predicts one more cut in August, taking the cash rate to 3.85%
- CBA predicts a cut each quarter, taking the cash rate to 3.35% by the end of the year
- NAB predicts a cut each quarter, taking the cash rate to 3.35% by the end of the year
- Westpac predicts a cut each quarter, taking the cash rate to 3.35% by the end of the year
The RBA's next cash rate announcement is due on Tuesday, April 1 at 2:30pm. Markets are currently ascribing a 63% chance of the next move in May, though some economists like Louis Christopher believe an April cut is likely.
Key Takeaway: Three of the big four banks expect a rate cut each quarter through 2025, with the cash rate potentially dropping to 3.35% by year-end, creating a favorable environment for property investment.
Investor Loan Approvals Surge Across Australia
The latest ABS Lending Indicators reveal a significant uptick in investor activity across Australia during 2024. The value of new investment loans during the 2024 calendar year reached $125.1 billion in original terms – a remarkable 29.8% increase from the $96.4 billion recorded in 2023.
This surge in investor lending was particularly pronounced in several states:
- Western Australia: up 55.9%
- Queensland: up 40.9%
- South Australia: up 40.7%
- New South Wales: up 29.3%
The December quarter also saw the average investor loan size increase by $25,065 to $674,316, reflecting investors' growing confidence and capacity.
Godfrey Dinh, CEO of Futurerent, sees a clear connection between this lending data and on-the-ground activity in Melbourne: "We're already seeing investors starting to take action in Melbourne's affordable suburbs, particularly targeting good 'owner occupier' stock. These are established houses in existing residential neighbourhoods with proximity to transport and amenities, where there hasn't been significant supply. These areas will also benefit from solid fundamental tailwinds as first and second homebuyers become more active."
This trend aligns perfectly with Melbourne's value proposition – investors can access quality housing stock at relatively affordable price points compared to other capital cities, while positioning for both rental yield and capital growth as the market recovers.
Key Takeaway: The substantial increase in investor loan approvals across Australia signals growing confidence in the property market, with Melbourne's affordable suburbs emerging as particularly attractive targets for savvy investors.
Strategic Implications for Investors
For property investors, the current market phase presents several strategic considerations:
- Melbourne's value proposition: With Melbourne now showing evidence of recovery while remaining significantly more affordable than Brisbane, Adelaide, and Perth, it presents a compelling opportunity for contrarian investors.
- Timing advantages: As Andrew Wilson, chief economist at My Housing Market, advises:
"These are probably the best times to get into the market. It's always harder when the market's softening to say, 'this might be the best time to buy' because you don't know how long the softening is going to go on for, but history tells us that lower interest rates mean higher house prices." - Leveraging existing equity: For established property owners, Jarrod McCabe notes this window "presents a unique opportunity to put their equity to work and expand their property portfolio before a rush of less-capital-laden home buyers enter the market and push up competition and prices."
- Rising investor activity: Demand from investors has been increasing, with the Australian Bureau of Statistics reporting 212,500 new investor loans for the year to September, representing an 18.8% increase from the 12 months prior.
- Interstate diversification: Investors from Brisbane, Adelaide, and Perth who have benefited from strong capital growth in recent years are now looking to diversify into Melbourne's relatively affordable market.
Key Takeaway: Early movers in this new market phase may benefit from Melbourne's relative value and increasing investor activity before further rate cuts drive increased competition.
Outlook: Preparing for the Next Growth Phase
As we move further into 2025, all indications point to a property market transitioning to a new growth phase. The rate cut cycle has just begun, supply constraints remain significant, and population growth continues to drive housing demand.
For investors who can navigate the current environment of still-elevated interest rates, the rewards could be substantial as rates decline further through 2025 and into 2026. Now may be the ideal time to position for the next upswing, particularly in markets like Melbourne that have underperformed in recent years but show signs of revival.
Key Takeaway: The combination of beginning rate cuts, persistent supply constraints, and continued population growth creates favorable conditions for property investors looking ahead to 2025-2026.
How Futurerent Can Help
At Futurerent, we're seeing growing interest from investors looking to capitalise on the emerging opportunities in the Australian property market. Whether you're considering to expand your portfolio before further rate cuts drive increased competition, or undertake renovations to maximise returns on existing properties, our team can help you access up to $500K across your portfolio to position yourself for this evolving "super cycle."
