Despite a turbulent year marked by inflation, fluctuating interest rates, and widespread focus on the challenges of the cost of living, the residential real estate market appears poised for significant rent hikes and capital growth in specific capital cities and regional areas in 2024. The fixation on the trajectory of property prices remains as pronounced as ever, with current market sentiment characterised by indecision.
Over the past three months, price trends across the country have been inconsistent, reflecting a tug-of-war between people’s expectations of long-term growth and the impacts of rising interest rates. The larger capital cities, particularly Sydney and Brisbane, are witnessing robust growth, while Perth and Adelaide have seen gains over the past year. Melbourne is gradually recovering from a period of stagnation, whereas smaller capitals like Hobart, Darwin, and Canberra are facing challenges.
In regional centres, South Australia and Queensland stand out as performers, displaying notable strength in recent times. Despite the prevailing economic uncertainties, certain areas within the real estate market seem resilient and positioned for growth in the coming year.
What direction are property prices expected to take in 2024?
Commencing in early 2023, those expressing pessimism regarding the property market found themselves surprised by a surge in prices that commenced around March. This positive outlook extended beyond Sydney to other urban centres, although the momentum was somewhat tempered by the Reserve Bank of Australia’s last two rate hikes.
So, what can be anticipated for 2024?
A logical starting point is to assess the factors known to influence the market and formulate judgments on their likely outcomes. The primary variable in this equation is the “mortgage cliff,” where borrowers have either experienced or will undergo a transition from low fixed rates, approximately 2 percent, to variable rates ranging between 5.6 and 6.2 percent.
This transition has been in progress for some time, yet thus far, there has been no notable impact on the property market. The average increase in payments for these households is around $900 per month yet, the level of arrears being reported by banks is still below that prevailing in 2019.
The areas most prone to the mortgage cliff are predominantly on the outer fringes of our capital cities as well as in some larger regional centres, like Ipswich Queensland.
To be clear, we don’t expect a tidal wave of defaults. What’s more likely is the combination of higher rates and lower economic growth will see a ratcheting up of pressure in areas with higher debt loads and among owners with lower equity in their properties.
The rise (and fall) of cashed up buyers
One of the more interesting factors this year has been the surge in people buying homes for cash (i.e. without a mortgage).
According to reports by property transaction agency PEXA, a quarter of all buyers on the eastern seaboard settled with cash. While a lot these were in country areas, several suburbs in Sydney, Melbourne, Brisbane and the Gold Coast and Sunshine Coast were also prominent. The strong cash purchase rates in central Sydney and Melbourne, along with heavy cash buying of vacant land in outer suburbs suggests a return of overseas investors.
But it’s the cashed up Baby Boomers who have been driving most of the growth, especially in provincial areas like Maryborough (Qld) and Taree (NSW) and suburbs like Broadbeach(Qld), Frankston (Vic), and Kellyville (NSW).
While these buyers have been a strong influence this winter, we expect that to wane somewhat over the next year. Nonetheless, it serves as a reminder that today’s market is less likely to be shaped by couples purchasing with a 10 per cent deposit. If you want to understand where the market goes next, start by tracking buyers with significant resources.
Home loans bouncing back?
Interest rates were a game changer in 2023, checking the market’s growth mid-year.
But have rates peaked? After a year of rises every month, the RBA has now lifted rates in only three of the last five months, meaning we are likely near a peak.These rises have had a big impact on the number of home loans approved, typically a reliable sign of how prices are likely to travel over the next six to 12 months. But it’s interesting to note the value of mortgages has only retreated to its level of 2019. And while the speed of that decline has been rapid, it has now stopped and could be starting to trend upwards.
The Rental market outlook
Some investors have asked if recently whether the Albanese government’s plan to build 30,000 social housing units would have any impact on market rents. While undoubtedly great for the people who will be housed, this plan is unlikely to have any discernible impact on rents.
The Rudd Government pursued a similar housing initiative in 2009. It delivered 20,000 units yet did little to alter rents or housing affordability. Over the last year, rents surged from their 15 year average growth of 3.5 to 6.7 per cent, according to the Australian Bureau of Statistics.
We expect rental growth to hit double digits in 2024.
For landlords, the key period to watch is February and March. In most centres, something like 30 per cent of lease agreements roll over in these two months and that’s when we will see how big the rises will be.
The Property Market in 2024
Anticipate a continued fluctuation in Australia’s property market, resembling a rollercoaster ride. Although the overall figures may not be overwhelmingly positive, the underlying dynamics are poised to be intriguing.
The current surge in growth commenced with family homes in the middle ring of Sydney, maintaining momentum through winter, particularly in upscale areas like Melbourne’s prestigious Bayside. However, this upward trajectory came to an abrupt halt in the outer ring mortgage belt and several smaller regional centres, which surprisingly stole the spotlight in 2021 and 2022.
Looking ahead to 2024, we foresee the focal points of high performance shifting towards inner and middle ring suburbs of capital cities, as well as larger regional centres such as Newcastle, Geelong, and Ballarat.
An interesting development in the upcoming year will be the heightened significance of rent increases, a departure from the norm. This shift is likely to attract investors and prompt some renters to explore opportunities in the more affordable segments of the market.
While the overall market may deliver lukewarm results, astute investors can expect rewarding returns from navigating the nuanced landscape of property fluctuations.
Why you should consider investing in Perth, WA*
Perth is one of just two capital cities where house prices have persistently hit all-time highs and avoided any material downturns throughout the year, with limited choice playing a major role in this trend. Domain’s end-of-year wrap and 2024 outlook report was released on Thursday, with 2023 dubbed “the year that surprised everyone.”
Chief of research and economics Dr Nicola Powell said price growth had defied high interest rates.It was largely expected to be the year that rapid rate hikes continued to hit housing demand and would impact price growth negatively.
What subsequently unravelled, was a reverse of expectation that defied logic – as a shortfall of housing supply collided with rapid population growth, a strained construction sector and the tightest rental market on record — and Australian property prices rose.
- Perth was the only capital bar Adelaide where prices hit all-time highs throughout the year, finishing with a peak median house price of $724,033.
- The price of units, however, was down 9.9 per cent from where they peaked in 2023, finishing at $380,430
Will interest rates increase in 2024?
In a recent update, the Reserve Bank of Australia (RBA) hinted that rates might rise early in the year. This comes after an increase in November 2023 took rates up to 4.35% and kept it as it is in December 2023.
The RBA has been trying to keep inflation at a comfortable level, but it’s been a bit like trying to tame a balloon in the wind. They’ve said it might take a bit more time to get inflation to settle down to where they want it to be.
So, if controlling inflation is like keeping that balloon steady, raising interest rates is one way the RBA can pull it back down to earth. Higher interest rates generally mean people spend less, which can help cool off inflation.
Unemployment rate is also another key indicator for policy maker to make decision on interest rate. According to RBA, for inflation to go down the unemployment rate need to rise to 4.5%. When more people are employed, consumer spending typically increases, which can drive up prices and inflation. If the unemployment rate gets to 4.5%, that will mean an extra 140,000 unemployed [3].
Property Prices in 2024 – Where are they heading?
Predicting the trajectory of house prices in 2024 poses a considerable challenge, akin to unraveling a complex puzzle with numerous pieces. The 2023 property market overview indicates a notable surge in house prices in certain regions of Australia, contrasting with the stability or decline observed in other areas. Additionally, monthly fluctuations in pricing are evident, driven by the dynamic interplay of supply and demand in the housing market. To formulate well-informed projections for the upcoming year, careful consideration of several pivotal factors is imperative.
Housing market dynamics are influenced by several factors. Firstly, changes in interest rates affect the cost of borrowing for home loans, potentially impacting housing demand and prices. Secondly, international demand, driven by factors like economic stability and lifestyle preferences, can significantly influence property markets, leading to increased demand and higher prices, especially in desirable locations. Lastly, demographic shifts, such as population growth or decline in a city, play a crucial role in shaping housing prices – an influx of residents can drive prices up, while a decrease may result in a surplus of houses and lower prices.
How can we help?
If you have any questions or would like further information or you are seeking property tax advice, please feel free to contact our office via email –info@investplusaccounting.com.au or phone 02 9299 7000 to either speak with someone or arrange a time for a meeting so we can discuss your requirements in more detail. You can arrange a free 15 minute no obligation chat to discuss your options. Please arrange an appointment with our office by clicking here
General Advice Warning
The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
Although every effort has been made to verify the accuracy of the information contained on this page and on this website, Investment Plus Accounting Group, its officers, representatives, employees, and agents disclaim all liability [except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this website or any loss or damage suffered by any person directly or indirectly through relying on this information.