(Bloomberg) -- Australia’s housing market climbed further in April, driven by a supply shortfall that’s increasing affordability challenges at a time when borrowing costs are at a 12-year high.

Mining-hub Perth surged 2%, market bellwether Sydney 0.4% and Brisbane climbed 0.9%, property consultancy CoreLogic Inc. said in a report on Wednesday. Prices in Melbourne declined 0.1%, resulting in an overall increase of 0.6% for Australia’s major cities — unchanged from March.

Broadly, house price gains across Australia’s cities have slowed from a peak in mid-2023, said Tim Lawless, research director at CoreLogic. 

“Housing values are likely to be propped up by the mismatch between housing supply and demand — a situation that doesn’t look like it will change in the near future,” Lawless said. Sydney is the most expensive market in the country with the median price of A$1.15 million ($750,000).

Australia’s property market surprisingly recovered last year despite the Reserve Bank’s aggressive policy tightening campaign to rein in inflation. CoreLogic’s national home value index has advanced 34.4% since the onset of Covid-19, with Sydney climbing 26.1% during that period.

The RBA’s tightening cycle, combined with an acute shortage of dwellings and booming population growth, has sparked a housing crisis in large parts of Australia. The problem is particularly acute in Sydney where buyers are being priced out of the market given as an average home costs 13-times income. 

“With higher for longer interest rates a strong possibility, the recent upside surprise on inflation, a gradual loosening in labor markets, growing housing affordability challenges and a slowdown in economic activity, the downside risk for housing markets is building,” Lawless added. 

 

Bloomberg Economics expects the outlook to remain challenging over coming months. 

“There are cross-currents,” economist James McIntyre said. “The impact of the RBA’s 425 basis points of rate hikes is damping demand. On a less negative note, the unemployment rate has been grinding higher but is still low. Solid wage growth and mid-year tax cuts should offer some support to spending.”

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