Will the Strong Home Price Growth of 2023 Continue?
2024 has dawned with a cloud of uncertainty hanging over the housing market in Australia, leaving homebuyers, investors, and renters grappling with numerous questions.
Here are seven pressing inquiries that will shape the housing market in the year ahead:
The property market surprised many in 2023 with a remarkable surge in home prices. Despite earlier predictions of price declines due to low sales volumes, weakening demand, and late 2022 falling prices, national property values defied expectations, climbing by 5.5% during the first 11 months of 2023.
As we look ahead, the broader economic outlook suggests a slowdown and the anticipated increase in the unemployment rate due to 13 interest rate hikes will likely dampen the rate of price growth in 2024.
The latest PropTrack Property Market Outlook report anticipates national price growth ranging from 1% to 4% next year, with select suburbs possibly experiencing an 8% rise.
While it’s unlikely that prices will plummet, the strong demand, limited housing stock, and a stable interest rate environment are expected to prevent a fall. However, the pace of growth is projected to be more gradual than the robust 2023 performance.
Will Interest Rates Fall, and If So, When?
Since May 2022, the cash rate has witnessed a significant upward trajectory, soaring by 425 basis points, and reaching a 12-year high of 4.35%. These successive rate hikes have reduced borrowing capacity by approximately 30%.
At present, interest rate futures indicate no further increases, with expectations of a 25 basis point rate cut by mid-2024. However, forecasting the path of interest rates remains challenging. While inflation remains outside the target range, the prospect of near-term rate cuts appears unlikely, and the possibility of additional rate hikes persists.
Will More Vendors Enter the Market?
Throughout 2023, the housing market experienced a persistent shortage of available properties for sale. However, a noticeable shift occurred within the investment landscape, with more investors choosing to divest in favour of potentially more lucrative investment vehicles.
The high-end property market in Sydney’s eastern suburbs presents a different story altogether. High-end properties, especially those in beachfront locations like Vaucluse and Bellevue Hill, have seen record-breaking sales.
The high-end market’s growth seems to be insulated from interest rate fluctuations and is primarily driven by the scarcity of properties for sale. Downsizers are cautious about selling before securing alternative accommodations, and the price tag for oversized luxury units, ranging from $50,000 to $120,000 per square meter, often exceeds the value of their current homes.
Is There Any Relief on the Horizon for Renters?
Rental price growth accelerated throughout 2023 as demand consistently outpaced supply. This resulted in a lower rental vacancy rate and properties being leased at a faster rate.
The surge in rental growth was driven by strong demand and a continuous shortage of rental properties. This scarcity was amplified by a higher volume of investors selling compared to the number of new investors entering the market.
While it’s challenging to envision rents continuing to surge at the same pace witnessed over the past year, it’s equally hard to foresee anything other than further rent increases in major capital cities in 2024.
Will New Housing Construction Rebound as Construction Costs Ease?
Approvals for new dwellings have languished at near-decade lows. Escalating material and labor costs since the onset of the pandemic are well-documented factors affecting this trend. Other contributors include higher interest costs for development and construction financing, along with elevated mortgage costs for potential buyers, which have collectively hindered new construction.
While the cost increases in construction materials are slowing, labor shortages persist. The premium associated with new housing compared to existing homes is currently more substantial than usual, dissuading potential buyers from considering new properties.
While there may be a modest uptick in new housing construction in 2024, a substantial increase seems unlikely given the persistent challenges posed by material costs, labor shortages, and interest rate burdens.
Will New Investors Replace Those Exiting the Market?
Since the onset of the pandemic, a considerable number of investors have opted to leave the market, leading to an increased volume of investor-owned properties listed for sale. While some investors were divesting, new investors began re-entering the market during 2023.
The expectation of a more stable interest rate environment in 2024, coupled with enhanced tax-deductibility due to interest rates being at their highest level in 12 years, along with the ongoing rise in rental prices, is expected to make property investment more appealing in 2024. This is particularly relevant as home price growth slows down.
Although it’s unlikely that the influx of new investors will fully offset those selling their properties, we anticipate the strengthening of investor activity throughout the year.
What Lies Ahead for First-Home Buyers?
While the number of first-home buyers remains below the highs experienced during the pandemic, their activity surged throughout 2023, surpassing long-term averages. In most cases, servicing a mortgage is expected to be costlier than renting. However, the state of the rental market is likely to motivate more renters to consider homeownership, especially as mortgage rates stabilize.
While not all renters have the financial means to make the transition to homeownership, the allure of cost predictability and the security that comes with owning one’s home are expected to be compelling factors.
Federal and state-level assistance schemes are also available, which may further bolster first-home buying activity in 2024.
Final words
As we navigate through the uncertainties of 2024, the housing market in Australia is poised for a dynamic year. The complex interplay of factors, from interest rates to supply and demand, will undoubtedly shape the landscape for homebuyers, investors, and renters alike.
For those interested in real estate in Sydney’s Eastern suburbs, it’s an ever-evolving landscape worth keeping a close eye on. If you’re considering buying or selling in this market, don’t hesitate to reach out for more information and guidance.