31 Jan What to expect from the property market in 2024
What to expect from the property market in 2024
For housing, the big question on everyone’s mind is whether the property price gains seen in 2023 will continue in 2024.
While there are many uncertainties, we do see national home prices ending the year higher, though the outlook varies widely between states.
The current state of the market
From January to November 2023, national property prices increased by 5.5%. Capital city prices were 6.6% higher and regional prices were 2.8% higher. An outcome not many expected after 2022’s fast falls.
Over the year, house prices have risen at a moderately faster pace than unit prices, with increases of 5.6% and 5.0%, respectively. It should be noted that capital city house prices are rising faster (6.9%) than units (5.3%).
The trend is reversed in regional markets, with stronger unit price growth (4.2%) than houses (2.5%).
While prices have continued to rise, the rate of price growth has slowed over recent months.
This slowing has likely been driven by the lift in new listings on realestate.com.au which is giving buyers more choice and reducing competition, while affordability remains stretched.
With this year’s sustained price rises and stronger homebuying demand environment, market conditions are firmer and confidence amongst both buyers and sellers is up relative to the same time last year.
What to expect in 2024
Home prices are expected to continue rising in 2024, though the pace of growth is set to keep slowing.
In addition to supporting factors like record net overseas migration, tight rental markets, low unemployment, and home equity gains, from the middle of 2024 we’ll see the commencement of stage three tax cuts, which are most beneficial for higher income earners. This could lead to increased demand for higher priced housing.
A higher share of borrowers with large deposits is one reason why prices in 2023 have been so resilient to higher interest rates. Many in the market in 2023 were upgrade buyers taking advantage of large equity boosts from the pandemic boom, which saw prices increase 36% since early 2020.
High-deposit buyers are more insulated from the higher interest rate environment and will likely continue to make up a higher share of the market in 2024, and play a part in keeping prices elevated, despite higher interest rates.
The latest PropTrack Outlook Report outlines our forecasts for price growth in the year ahead, and we expect national home prices to climb between 1.0% and 4.0% in 2024.
For context national home prices are on track to end 2023 up close to 6.0% over the calendar year.
Population growth is set to remain strong, but ease off the record pace seen in 2023. Rental markets are also set to remain tight, but conditions in the rental market are unlikely to deteriorate at the same pace as they have in 2023 meaning we could see some stabilisation in rental prices.
This means these positive tailwinds for home prices that were in action in 2023 may work with easing influence in 2024.
Households are feeling the strain of higher interest rates and elevated inflation. Growth slowed sharply in the three months to September 2023 as households tightened their belts. The significant increase in mortgage servicing costs, together with increased tax obligations and cost-of-living pressures has seen household spending slow sharply, weighing on economic activity.
It’s one reason why it’s likely the cash rate has peaked in this current tightening cycle, with interest rates set to hold steady at this higher level for the foreseeable future.
At the same time affordability has deteriorated markedly and remains stretched which will weigh on price growth, the economy is expected to continue to slow, and labour market conditions are weaker and will continue to deteriorate.
In saying that, limited new housing construction and a slowdown in the completion of new homes due to high costs and build times will keep housing supply tight against a backdrop of continued population growth.
These factors will likely lead to further price gains over the 2024 calendar year, though at a slower pace than we’ve seen this year.
Stock on market is also set to remain tight in Perth, Adelaide, and Brisbane where total listing volumes continue to sit well below decade averages. Because of this, we expect the smaller capital cities of Perth, Adelaide, and Brisbane – who’ve been the best performing markets this year – will continue to see the strongest price growth going into next year.
In Sydney and Melbourne, where total listing volumes are now back above decade averages, price growth is set to be more subdued.
Sydney prices are forecast to rise between 2.0% and 5.0% in 2024, down from close to 8% in the 2023 calendar year.
It’s possible that some regions could see prices dip slightly – prices are still falling in Hobart and Canberra and those falls may continue into 2024.
This article was originally produced by Eleanor Creagh the Senior Economist of Real Estate in Australia. You can read the full article here.
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