Sydney home values climbed to a record in June as strong demand and low supply overshadowed increasing pain from high borrowing costs. Melbourne declined for a third straight month.

Bellwether Sydney rose 0.5% in the month, taking the median to a fresh high of A$1.17 million , property consultancy CoreLogic Inc said Monday. Perth was the best performing capital with a 2% gain and Brisbane jumped 1.2%. Melbourne and Hobart were the only two of Australia’s eight capital cities to post declines. Overall, dwelling values for major cities climbed 0.7% in June.

CoreLogic’s national index has advanced 36.8% since the onset of Covid-19, despite the Reserve Bank of Australia’s (RBA) aggressive rate hikes, with Sydney climbing 28.2% during that period.

“The persistent growth comes despite an array of downside risks including high rates, cost-of-living pressures, affordability challenges and tight credit policy,” said Tim Lawless, research director at CoreLogic. “The housing market resilience comes back to tight supply levels which are keeping upwards pressure on values.”

Higher interest rates, a shortage of homes and booming population growth have caused 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 an average home costs 13-times income.

Brisbane and Perth have posted strong monthly increases this year helped by robust state migration and low supply. In May, the median home price in Brisbane topped Melbourne. Canberra is the second-most expensive market after Sydney with a median price of A$870,071.

The experience of Melbourne, which is seeing the second fastest population growth in the country and still weak housing price increases “highlights that the housing shortfall is no guarantee that prices will continue to surge at a time when mortgage rates are well up from their lows,” said Shane Oliver, chief economist at AMP Ltd. “The key to watch will be interest rates, unemployment and population growth.”

The RBA is expected to leave the benchmark policy rate at the current 12-year high until at least early 2025 as inflation is proving sticky, according to a median of economists surveyed by Bloomberg. So far, the jobless rate remains low at around 4% while population growth is slowing from a record pace last year.

The number of homes advertised for sale in capital cities in the past four weeks was almost 18% below the previous five-year average, the report said. However, new listings tracked 12% higher than a year ago.

“The rise in new listings could be a signal that more homeowners are motivated or needing to sell,” Lawless said.

Bloomberg Economics expects the outlook to weaken as more sellers start to list their properties, particularly in Sydney and Melbourne.

  - Bloomberg