(Bloomberg) -- Australian home prices accelerated in February, extending gains at a time of elevated interest rates, reflecting a spike in population growth and a dearth of new housing construction.

Sydney climbed 0.5% last month while Melbourne nudged up 0.1%, resulting in an overall increase of 0.6% for Australia’s major cities, property consultancy CoreLogic Inc. said in a report on Friday. The two fastest-growing markets were mining-powerhouse Perth as well as Adelaide, which advanced 1.8% and 1.1%, respectively.

The Reserve Bank of Australia has increased borrowing costs to a 12-year high of 4.35% in a rapid tightening campaign to try to restrain inflation that surged in the post-pandemic period. Signs that consumer prices are steadily coming down have prompted economists to predict rate cuts will begin as early as August. 

“The ongoing rise in housing values reflects a persistent imbalance between supply and demand,” CoreLogic Research Director Tim Lawless said. “Potentially we are seeing some early signs of a boost to housing confidence as inflation eases and expectations for a rate cut, or cuts, later this year firm up.”

Australia’s property market has remained strong despite the central bank’s 4.25 percentage points of policy tightening since May 2022, buoyed by a surge in immigration following the end of Covid border restrictions and limited housing supply as soaring costs put off builders.

Lawless suggested the market is unlikely to react sharply to initial policy easing, saying “it’s hard to see a material lift in housing values until interest rates come down significantly.”

Bloomberg Economics anticipates that price gains will peter out in the near-term as elevated rates and constrained affordability remain barriers to entering the market. The median house price in Sydney was A$1.13 million ($730,000) in February, about 47% higher than the national median. 

Other key data points:

  • House prices increased 8.9% nationally over the 12 months to February
  • The national rent index increased 8.5% over the 12 months to February
  • Last week was the biggest for auctions so far this year

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