️ Highlights:
1. Property prices in 2023 exceeded expectations, with a 5.5% increase nationally. However, price growth is expected to slow in 2024 due to a slower economy and higher unemployment rates.
2. Interest rates have increased significantly since May 2022, leading to a 30% decrease in borrowing capacity. There is uncertainty regarding future interest rate changes, but current projections suggest a possible 25 basis point cut by mid-2024.
3. The number of properties for sale has remained low, particularly in major capital cities. It is uncertain whether there will be an increase in new listings in 2024.
4. Rental prices have been increasing due to high demand and limited supply. While it is difficult to predict future rental price growth, it is expected that rents in major capital cities will continue to increase in 2024.
5. New housing construction has been hindered by material and labor cost escalations, as well as higher mortgage costs. While there may be a slight increase in new construction, significant growth is unlikely due to these factors.
6. Many investors have left the market, but new investors are expected to enter in 2024 due to a more stable interest rate environment and increasing rental prices.
7. First-home buyer activity has increased in 2023, but the cost of servicing a mortgage is still higher than renting in most cases. However, the rental market conditions may drive more renters to consider purchasing their own homes, especially as mortgage rates stabilize.
Assessing the Future of Real Estate Amidst Economic Uncertainties
As the property market approaches the traditionally quiet holiday period, Cameron Kusher, Director of Economic Research, explores the uncertainties facing homebuyers, investors, and renters in 2024. Here are seven critical questions that will shape the housing market in the upcoming year.
1. Will Home Price Growth Continue?
Despite a challenging economic backdrop in late 2022, national property prices rose by 5.5% over the first 11 months of 2023. The PropTrack Property Market Outlook report forecasts a national price growth of 1% to 4% in 2024, with some cities potentially seeing up to 8% growth. However, this growth is expected to be slower than in 2023, influenced by a slowing economy and the impact of interest rate hikes.
2. The Future of Interest Rates
Since May 2022, the cash rate has surged by 425 basis points, significantly impacting borrowing capacity. While interest rate futures suggest no further increases and a potential cut by mid-2024, the path of interest rates remains uncertain, especially with inflation still outside the target range.
3. Will More Vendors Enter the Market?
Throughout 2023, property listings remained low, with a notable increase in new listings driven primarily by Sydney and Melbourne. The key question for 2024 is whether these cities will continue to see strong new listings and if other major capitals will experience an increase in stock for sale.
4. Relief for Renters?
Rental price growth accelerated in 2023 due to high demand and limited supply. With investors selling more properties than new investors entering the market, rental conditions remain tight. While rapid rent increases may not continue at the same pace, rents in major capital cities are likely to rise further in 2024.
5. Rebound in New Housing Construction
New dwelling approvals are at near-decade-low levels, impacted by high material and labor costs. Although construction cost escalations are slowing, the premium for new housing remains high. A moderate lift in new housing construction is possible in 2024, but significant challenges remain.
6. The Role of Investors in the Market
The exit of many investors from the market since the pandemic onset has been countered by new investors returning in 2023. With a more stable interest rate environment expected in 2024 and increased tax-deductibility, property investment may become more attractive, although it’s unlikely to completely offset the number of investors selling.
7. First-Home Buyer Activity
First-home buyer activity has increased throughout 2023 and remains above the long-term average. The state of the rental market, along with the stability of mortgage rates, may drive more renters towards homeownership, particularly with various assistance schemes available.
Conclusion
The housing market in 2024 is poised to face a mix of challenges and opportunities. From the trajectory of home prices and interest rates to the dynamics of new listings and rental conditions, these factors will play a crucial role in shaping the real estate landscape. Understanding these trends will be key for stakeholders in navigating the market effectively.