(Bloomberg) -- Australian house prices are poised for an annual rebound during a policy tightening campaign for the first time since at least the early 1990s, when the Reserve Bank began inflation targeting and entered the modern era.

National property prices will climb 7.7% this year, a Bloomberg survey showed, recovering from a 4.8% decline in 2022. The median estimate of the poll of 12 economists was for the housing market to advance by a further 4.5% in 2024. 

The recovery is unprecedented as it comes amid the RBA’s most aggressive tightening cycle in more than 30 years, having raised interest rates by 4 percentage points in 14 months. In the previous episodes when house prices rebounded from a fall, based on figures dating back to 1994, the central bank had already begun reducing borrowing costs, as set out in the chart below.

“The Australian housing market has proved much more resilient to higher interest rates,” said Andrew Boak, chief economist for Australia at Goldman Sachs Group Inc. “We view the risks to our already above consensus growth forecasts for 2023 and 2024 as skewed slightly to the upside.”

RBA Governor Michele Bullock admitted Wednesday that she had been caught off-guard by the property market’s recovery. 

“The housing market has surprised me a bit,” she said in a fireside chat in Sydney. “When interest rates started to rise, housing prices started to decline and we thought that they would continue to decline. But basically now they’re back to where they were in their peaks of the pandemic.”

Minutes of the bank’s Oct. 3 meeting released Tuesday showed policymakers are concerned about the implications of households feeling wealthier, as they’re more likely to spend and add to already elevated inflation pressures.

That has the bank again mulling whether it needs to do more: “The rise in housing prices could also be a signal that the current policy stance was not as restrictive as had been assumed,” the minutes showed.

The RBA’s vigilance on inflation is reinforced by higher oil prices that threaten to spill over into people’s expectations for prices. Economists see one more hike to 4.35%, though money market pricing suggests the campaign is all-but done.

Resurgent house prices are being driven by a combination of an acute supply crunch and a population surge as the immigration gates were reopened post-pandemic.

An additional factor behind economists’ bullishness on housing is an update to the methodology of property consultancy CoreLogic Inc., which runs the monthly house-price index used by most groups to calculate market movements. 

The resulting upward revisions to the back-series increased the pandemic-era gain in home prices to 26.6% from 23.1% between February 2020 and April 2022. In addition, the peak‑to‑trough decline for the eight‑capital city index was lowered to 8.1% from 9.7%. 

The revisions led three of the 12 respondents in the Bloomberg poll, including top lender Commonwealth Bank of Australia, to upgrade their forecasts for this year, while two revised their predictions for 2024. Westpac Banking Corp. said it’s still reviewing its estimates.

A robust economy with the unemployment rate hovering in a range of 3.4-3.7% — levels last seen in the 1970s — has also underpinned demand for housing. Given that backdrop, there are few signs that a property downturn is around the corner.

“It stands to reason at the moment that housing values would continue to rise in the near term,” said CoreLogic Economist Eliza Owen. 

--With assistance from Garfield Reynolds and Cynthia Li.

(Updates with comments from RBA Governor Bullock on Wednesday.)

©2023 Bloomberg L.P.