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What’s the outlook for Australian property prices in 2024?

By Mo Zeitouneh

This year, the property market has been many things but as we head into 2024, experts have weighed in on five major trends to watch in the property space.

Australia’s property market in 2023 defied expectations with property prices rising on the back of increasing interest rates. What unravelled was a glaring shortage of listings as buyer demand fuelled the market and sent prices rising, surprising even the most seasoned of economists.

So what can buyers, sellers, investors, renters and everyone in between expect in 2024?

For one, house prices are tipped to rise across the country by 5 to 7 per cent for houses, with the median house price in Sydney expected to rise by 7 to 9 per cent, in Brisbane and Adelaide by 7 to 8 per cent, and in Perth by 6 to 7 per cent.

The median in Canberra is expected to increase at a more modest rate of 3 to 5 per cent, and in Melbourne and Hobart by 2 to 4 per cent.

Some of those driving forces include: population growth as post-COVID migration continues to see people looking for a place to live; the dire need for more housing supply; and relaxed lending, as calls to review the mortgage serviceability buffer become more heightened, which would accelerate buyers’ access to the property market.

The Domain End of Year Wrap 2023 highlights five potential property trends for the new year.

Any interest rate cuts could spark demand

Interest rates have been a hot topic of discussion at dinner tables this year, and next year will likely be no different. Interest rates are expected to remain high well into the latter part of 2024, says Domain chief of research and economics Dr Nicola Powell.

“Stretched affordability and lower borrowing power will continue to place a ceiling on buyers’ capacity to pay for a home,” she says. “We could see measures that improve this outlook for buyers in 2024.

“The interest rate cut is going to be one of those things that’ll probably help to change consumer sentiment. Once we start to see interest rates being cut, it’ll feed into improved consumer sentiment, and once consumer sentiment starts to rise, we’ll likely see increased housing activity occur – and that is expected to happen in late 2024.”

A cut in interest rates, while it may be a relief, would likely spur activity and could create another price upswing, Powell adds.

Panal Boustni of Ray White Quakers Hill – Tesolin Group likens current buyer and seller sentiment towards interest rates to the way buyers and sellers acted during the pandemic period.

“When COVID first became a thing everyone was freaking out and nobody wanted to leave the house,” he says. “But after the second lockdown, the third, the fourth – people just acclimatised to it, people adjusted and understood that that was just what was happening at the moment.

“Interest rates are slowly starting to become the same. You’re still getting some people freaked out about interest rate rises but now it’s more so their borrowing capacity that’s limited … people understand what they’re up against.”

Powell says an alternative to a rate cut would be an easing of the mortgage serviceability buffer, which could speed up access onto the property ladder and, in some ways, improve the cost of holding debt.

The Reserve Bank of Australia’s most recent cash rate rise was this month, increasing by 25 basis points to 4.35 per cent. This was the 13th rate hike since May 2022.

Buyers will be chasing affordability

According to the Domain report, Australia’s median house price is now back at its peak of $1,084,855. Regional house prices have also hit a peak of $591,139.

Capital-city markets, including Brisbane, Adelaide and Perth, are also at record highs, and the remaining capitals are in recovery mode as well. Powell is predicting prices will lift even further across all capital city and regional markets in 2024.

“Buyers will be seeking affordable options and we are likely to see that pepper the market of 2024,” she says.

Federal and state incentives created to help prospective buyers or first-home buyers – such as the federal government’s Help to Buy scheme that will begin in 2024 and the Queensland government’s doubling of the first-home buyer’s grant from January 2024 – will create more demand, Powell adds.

“That is going to boost demand for affordable housing and that is likely to increase pricing also at the affordable end,” she says. “We’ll likely see stronger rates of growth in certain pockets of those affordable markets because of this increased activity from first-home buyers.”

While the incentives are welcome news for buyers, Centre for Independent Studies chief economist Peter Tulip says they’re a “symbolic imagery that will only push up prices”.

“It’s never a good time for a first-home buyer, is it?” he says. “But it’s harder than it has been to get a deposit together and now you’re also getting hit with mortgage rates that are a lot higher than they have been for many years. First-home buyers are going to find it very difficult.”

The report notes that there will also be a rise in generational inheritance as Baby Boomers consider early inheritance (and perhaps even skip a generation to help their grandchildren), influencing buying capacities and choices.

YIMBYs will replace NIMBYs

Domain is also predicting a change in housing reforms, with the not-in-my-backyard (NIMBY) folk swinging to a yes-in-my-backyard (YIMBY) stance on housing.

“It’s a much more visionary approach to housing development,” Powell says. “We’ll likely see some powers being taken away from local governments to enable urban densification in areas where people want to live.”

Take the ACT, as an example. The territory government announced changes under its Territory Plan that will allow owners of ACT residential blocks measuring 800 square metres or more to split their blocks into dual–occupancy properties in a bid to create more accessible and affordable housing options.

The Victorian government has also given home owners the power to build granny flats without planning permits.

However, Commonwealth Bank head of Australian economics Gareth Aird says more will need to be done to build supply.

“Even if there are policies or margins to help on the supply side, it’s not going to be enough to shift what looks like a big imbalance between demand and supply,” he says.

“What we underestimated in our forecast this year was just how big the supply and demand imbalance would be. We took the government’s forecast for population growth at face value and were projecting 1.5 per cent population growth and it’s coming in at more than 2 per cent now.

“As a result of that, we’ve had a mismatch between properties available and demand, especially on the rental side.

“It’s a unique market because affordability has deteriorated over the course of this year, but if more supply is added to the market, this will alleviate price pressures across [the] housing and the rental market.”

The federal government’s effort to address housing affordability will nonetheless provide greater entry opportunities.

“I think that we will see governments really focusing on building an Australia for the future rather than focusing on building on Australia of today and yesterday,” Powell says.

Population-driven housing demand

Population growth is set to remain a dominant feature in the housing market in 2024. Domain analysis has found population growth has a long-term impact on property prices and will continue to drive prices into the new year.

According to ABS data, in the year ending March 31, Australia’s population increased by 2.2 per cent year-on-year, with net overseas migration being the major contributor to change in all states.

“The housing market is being driven by immigration, and in particular by high student numbers, so temporary student visas,” Tulip says.

“You wouldn’t think that any of them would be buying houses, but the way the housing market operates is, if you get a strong demand in one pocket of the housing market, that will flow through other segments. So, we’ve got several hundred thousand students coming in that weren’t coming in a year or two ago and need somewhere to stay.”

Tulip adds that population-driven housing demand will “outstrip our current housing supply”.

“The obvious solution is to build more houses,” he says. “Even if immigration were to stop tomorrow, we’d still have a big shortage of housing. We need to fix that.

“The high migration rate would not be a problem if we were building houses the way we were just a few years ago. The national cabinet target of 1.2 million homes is really important to alleviate these immigration pressures.”

Rental markets reach a tipping point

With property prices expected to continue on their uphill trajectory, the rental market will likely see more tenants renting for longer, Domain’s report has found.

Aird says the increase in population has also put more pressure on the housing market.

“The fact that rental markets around the country have all been very hot is unique to an extent … during the mining boom, the Perth rental market was hot, but not the rental market on the east coast,” he says.

“But this year, rents have surged everywhere despite the fact that rates have gone up at record paces.”

The latest DomainRent Report measured the combined capitals’ median rental price for houses at $600 a week, up a record 13.2 per cent over the year. It was also $600 a week for units, up 23.7 per cent.

However, there will be a tipping point at which rent rises will relax, Powell says.

“Rent growth will slow, and some sub-markets will operate with a more balanced rental market,” she says. “This will be driven by stretched affordability [and] more renters [will opt] for house shares.”

However, with state and federal incentives set to begin in the new year, Powell expects this to be a tempting option for prospective first-home buyers hoping to get out of the rental market.

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