Over the past few weeks, the media has pulled out its crystal ball and provided us with a variety of forecasts for the 2024 property market. But “housing” is somewhat of a dirty word at the moment in Australia, and whether you’re buying or selling, it can be hard to know what to believe. Added to which, property markets are affected by so many factors beyond our control like economic conditions, interest rates, global events and even health advancements, so it can be difficult to make confident predictions.
Will the property market show the same resilience as last year?
Fortunately, the next best thing to a crystal ball is the advice of industry experts, many of whom were spot on in their forecasts last year. But despite the increasing cost-of-living crisis and interest rates, the property market proved surprisingly resilient, boasting a rise of more than 5.52% in national home prices.
The main reasons for that increase were low supply, strong demand, and limited construction, so does that mean that 2024 will be another bumper year for property owners?
“The higher cost of borrowing and a lack of available houses on the market may have hampered home buyers throughout 2023, but it hasn’t significantly slowed demand and the growth in property prices.” Forbes
The experts agree that there is unlikely to be any major correction in the property market
Let's see why:
Interest rates are likely to remain high. Although they appear to have stabilised at their current level, many buyers and homeowners are limited by their loan capacity. Though many are praying that the Reserve Bank will have a change of heart and make a cut to make servicing mortgages more manageable and increase confidence, most experts believe that rates will remain high and some are even predicting another rise.
There will be continued growth in house and unit prices. Major life events such as births, deaths, divorce, and distressed sellers will always ensure movement in the market and the surprising rise in home loans last year proved that. With 67% of Australians owning a property, Michael Yardney from Property Update is “Feeling comfortable” about this year. For example, he predicts Sydney house values will finish the year 6-7% higher and apartment values at 5-6%, and the major banks agree. He predicts the strongest performing cities will be Perth, Adelaide, and Brisbane with Melbourne showing slightly lower growth.
More buyers will purchase in “Bridesmaid” suburbs. We drew your attention to this change in buyer habits in our recent post. The bridesmaid suburb is the cheapest in the postcode - the neighbouring suburb that lacks the prestige of its top ticket neighbours but still offers all the key benefits and with the unaffordability of city properties, the appeal of these suburbs is their lower entry point and investment potential.
The "Help to Buy" scheme will assist certain first home buyers. The federal government program will offer eligible buyers an equity contribution of up to 40% for new homes and 30% for existing properties which will help keep the market moving at the first home buyer level.
A growing change in culture may help alleviate the housing shortage – In his Quarterly Essay on the housing crisis, Alan Kohler pointed out the benefits of the YIMBY versus NIMBY approach as one solution to the housing crisis. Rather than opposing new developments and re-zoning, YIMBYs encourage the development of more housing and infrastructure iIn their back yard" in a bid to reduce local prices and rents. The change won’t happen overnight, but the signs are encouraging.
The migration of buyers out of cities in search of a healthier lifestyle will continue. Many buyers are taking a more holistic approach to their housing needs and prioritising health and lifestyle. If we look at Sydney, for example, the Central Coast - to the north of the city - is exactly the type of commutable area that appeals to young families. To the south, towns like Wollongong offer a similar lifestyle as long as infrastructure keeps up with development.
Strong population growth will continue to impact the market. We’re finally seeing the return of international students, migrants, and job seekers after the pandemic. Last year, foreign investment in the new housing market also increased to 10.1%. Continued interest from foreign buyers and immigrants is expected.
Stage three tax cuts will benefit higher income earners and luxury buyers keeping the top-end of the market buoyant. With more borrowing capacity, these changes will increase their options in terms of suburbs and incentivise them to spend more.
The rate of construction is improving but not at the rate we need. “Although buoyant, 2024 may still be challenging for some construction businesses, with demand surging in some markets and flattening in others. Construction costs also continue to rise, although at a slower pace than the past two years, and planning approvals and labour market constraints persist,” says James Lawrence, Group Manager for Customer & Markets at Coates. This is one of the biggest issues in terms of supply meeting demand.
Many renters will be forced to buy. In some suburbs it is indeed "Cheaper to buy than rent" as we discovered in the research for our recent post. Furthermore, many renters are fed up with the current instability and rental hikes. This change will result in an increase in demand that unless we find a supply solution, will contribute to a rise in property prices.
“Deterred investors” could remain a problem, as pointed out by The Property Tribune. Rate rises and talk of changing policies and rent freezes have made some investors nervous which will continue to impact renters and the property market.
“Subdued growth, but pockets of strength.” Australian Broker
Furthermore, last year, despite the fears about the cost of living and interest rate rises, the bank of mum and dad and the sheer determination by Aussies to own a property helped some first-time-buyers across the line. This year, that commitment looks likely to continue.
Home prices are predicted to continue rising in 2024, albeit at varying rates depending on factors such as location and market conditions.
So what does that mean for buyers?
It means that overall, the outlook is optimistic. And even if interest rates rise again, the experts are confident that the market will continue to grow - although we should point out that certain experts like CoreLogic and Forbes have expressed their concern about the longer-term impact of the high cost of living unless the government can reduce it.
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