What’s ahead in our housing markets in the next year or two? Latest property price forecasts for 2024 revealed.

Key takeaways

• Currently Australia’s housing is so undersupplied that I've rarely encountered a supply-demand inflection point like this that requires such attention. And it’s only going to get worse.
• Sure there are unknowns and risks ahead, but there are also five certainties for our housing markets:
  1. Inflation will stick around a little longer than the RBA would like
  2. Interest rates will eventually fall
  3. The scarcity of dwellings for both purchase and rent will not go away any time soon.
  4. Rents will keep rising
  5. Astoundingly good demographics and strong population growth will keep fuelling demand for housing
• This creates a window of opportunity before falling interest rates create a property market reset.
• Inflation has now peaked and it's likely so have interest rates, and in due course consumer confidence will return and the markets will continue their upward trajectory.
• Here are some trends to watch for in 2024:
  • The recovery phase of the property market cycle will continue.
  • Interest rate full eventually.
  • Our property markets will become more fragmented.
  • Strong migration will continue to pin our housing markets.
  • Rents will keep rising strongly.
  • Strategic investors will keep the property market.
  • Living in the right neighbourhood will be more important than ever.
  • Our economy will remain robust, and employment will keep growing.

These are common questions people are asking now that the housing markets have experienced 13 months of rising values.

It is now clear that our housing market has defied the many doomsday forecasts and has moved through the bottom of the cyclical downturn early in 2023 experiencing a V-shaped recovery making the 2022 downturn one of the sharpest but shortest ones in history.‍

The price upturn is now firmly entrenched, rising for 14 months in a row and with home prices hitting fresh record highs in many markets .

Meanwhile, auction clearance rates are delivering consistent results showing the depth of our major capital city housing markets and the year has started with increasing buyer sentiment – in fact some FOMO (fear of missing out) is creeping in as house prices reach new peaks.

Auction results and consumer sentiment have both shown a historically strong relationship with future housing trends.

Consumer sentiment also recorded a solid rise in the last few months, signalling a lift in confidence.

A rise in sentiment suggests households will have a better ability to make decisions around large financial commitments, like a property purchase.

Of course, each state is at its own stage of the property cycle and within each capital city there are multiple markets.‍

While some regional areas outperformed the capital cities in 2022, capital city property markets have led the price upturn in 2023 and regional areas had slower growth.‍‍

And after underperforming throughout the pandemic period, unit prices recorded stronger growth for much of 2023 and that's likely can to continue in 2024 as affordability constraints will mean more Australians trade backyards for balconies and courtyards.

Here's what the big four banks forecasting for property prices in 2024

• ANZ forecasts capital city property prices to lift 5-6 per cent in 2024. The biggest gain is tipped for Brisbane, 9 to 10 per cent, and Perth property values could increase by 1-11% - Sydney by 4-5 per cent. Melbourne prices are predicted to lift 2 to 3 per cent.

• CBA expects capital city prices to lift 5 per cent, with small variations across the cities. Brisbane is tipped for 6 per cent growth, Melbourne and Perth for 5 per cent, Sydney for 4 per cent and Adelaide for 1 per cent.
• NAB predicts prices across the capitals to rise an average of 5.4 per cent. Prices are expected to lift 6.5 per cent in Brisbane, 6.2 per cent in Perth and Adelaide, 5.5 per cent in Melbourne and 5 per cent in Sydney. Hobart values are expected to end the year flat.
• Westpac forecasts 6 per cent growth across the combined capitals. Perth is pencilled in for the highest growth at 10 per cent, followed by Brisbane at 8 per cent, Sydney at 6, Adelaide at 4 and Melbourne at 3

You can always beat the averages.

While it’s likely that property price growth will be a little lower in 2024 than it was last year, the good news is that if you don’t like the outlook for what property will do on a national level, you can always beat it by investing in the right property in the right location.

Now by that, I don’t mean look for the next hotspot.

I mean buying quality properties in locations that will outperform in the long term such as gentrifying suburbs.

You see...property offers countless opportunities to improve your results through your own time, skills and knowledge – so you don’t need to settle for average.

And there’s more to it than just location. You can add value through refurbishment, or redevelopment.

Oxford Economics recently made the following forecasts of where house prices will be in 3 years time.

The latest housing market stats

Dwelling values have remained robust as CoreLogic's national Home Value Index rose 0.6% in February, the strongest monthly gain since October last year.

In fact, all the research houses reported higher dwelling prices in March 2024:

• Australia’s housing upswing continues in 2024 with CoreLogic’s national Home Value Index (HVI) rising 0.6% in March, on par with February’s increase, taking the current upswing in housing values through its 14th straight month of growth.
• PropTrack reported that national home prices lifted 0.34% to hit a new record in March, bringing prices up 1.57% so far this year to sit
  6.79% above March 2023 levels.
• Dr Andrew Wilson’s My Housing Market reported that Home prices surged over March 2024 with a generalised surge in home prices reported over the March quarter, well ahead of the February quarter results. According to the latest data from My Housing Market, the national capital city median house price increased sharply by 2.7% to $1,125,923 in the March quarter compared to the February quarter.

The fundamentals of what drives Australian property prices

Property prices are driven by a combination of factors, and as we move through property cycles, they all come together to influence whether property values rise or fall.

In the medium term, property values will be linked to a range of factors that tend to boil down to two basic economic concepts: consumer confidence and supply and demand.

Understanding how these concepts work together to affect real estate is crucial to one’s understanding of what’s ahead for our housing markets.

On the other hand, if you look at what's ahead for housing markets over the next decade or two, and take a telescopic view, rather than a microscopic view, the two big factors driving our housing markets will be demographics (how many of us there are, have we want to live and where we want to live) and the wealth of the nation.

But first, let’s dig a bit deeper into the key underlying factors that will be influencing our property markets in the medium term.

1. INTEREST RATES/AFFORDABILITY

While many people believe interest rates are a key driver of property values, and that's why there were so many pessimistic property forecasts as interest rates rose through 2022-23, our housing markets showed considerable resilience and kept rising in value despite the 13 interest rate rises the RBA threw at us.

Of course, falling interest rates and the subsequent increased affordability are strong drivers of property price growth, but the reverse isn't true.

House prices are driven by many other factors, not just interest rates.

Recently Australia's biggest lender, the Commonwealth Bank, is forecasting 6 interest rate cuts in 2024 and 25 starting in September.

This would take the Reserve Bank of Australia cash rate back to 3.6 per cent in the second half of 2024 for the first time since May 2023 - down from an existing 12-year high of 4.35 per cent.

Of course, this extra borrowing capacity would put a fire under our property markets.

However the recent fall in the unemployment rate and the fact that stage 3 tax cuts will give Aussies a little bit more money in their pocket has now made many of the banks suggest the first interest rate cut won't come till later in 2024.

2. SUPPLY AND DEMAND

Housing supply has a significant influence over house prices in the short term: an undersupply puts pressure on prices to rise while an oversupply does the opposite.

Despite very strong population growth through 2023, we’re just not building enough new dwellings, and this has put pressure on housing supply reflected in low rental vacancy rates and higher house prices.

At the same time, the strong absorption of new listings for sale has kept total listings in the market suppressed, intensifying competition between buyers.

These factors have created a sharp shortage of housing, outweighing the negative impact of rates on prices.

And there is no end in sight as building approvals (which are a good indication of future supply) are running at very low levels.

And just because a new apartment complex has been approved, it doesn't mean it will get built.

At the moment very few new complexes are coming out of the ground because it's not financially viable to build them at today's market prices.

Of course, this means future new developments will have to sell at prices considerably higher than today’s market value and this will, in turn, pull up the value of established apartments.

3. CONSUMER CONFIDENCE

Consumer confidence is a critical factor affecting the direction of property prices.

We won't make big financial decisions like moving home or buying an investment property unless we feel confident about our economic future and our financial stability.

2023 was a year where consumer confidence was at historic lows because of all the economic and socio-political issues that confronted us.

I believe that during 2024 consumer confidence will rise as inflation slowly comes under control and we realise interest rates have peaked and are going to eventually fall.

At the same time, the “wealth effect” a very improving economy and rising property values will lead to further consumer confidence and bring home buyers and sellers back into the market.

4. ECONOMIC CLIMATE

Another key factor that affects the value of the property market is the overall health of the economy.

This is generally measured by economic indicators such as the gross domestic product (GDP), employment data, manufacturing activity, the prices of goods, etc.

Broadly speaking, the economy is strong and the RBA is trying to slow it down to bring inflation under control, but currently, everybody who wants a job can get a job and this will underpin our housing markets even if the economy falters a little moving forward.

5. POPULATION GROWTH

Australia has experienced a record-breaking rate of net overseas migration, estimated to have reached around 500,000 people in the 12 months to September 2023.

While population growth has always been a key driver supporting our property markets, the influx has pushed our supply/demand balance off-kilter and is key to the increase in housing prices and the shortage of rental properties.

6. AVAILABILITY OF CREDIT

When the credit (the ability to borrow from the banks) is readily accessible, with lower interest rates and less stringent lending criteria, it tends to stimulate the housing market since more people find themselves able to borrow money to buy homes, leading to increased demand for housing.

On the flip side, when credit is tightened through higher interest rates or stricter lending criteria (as happened when APRA made the banks tighten the purse strings in 2016-7), the effect can be a cooling of the housing market.

Such measures are usually a deliberate policy response to an overheated market, aiming to reduce the risk of a “property bubble” and subsequent crash.

7. INVESTOR SENTIMENT

This sentiment, essentially the collective attitude and outlook of investors towards property markets, can significantly influence both the demand for and the value of real estate.

Investors generally account for around one-third of all property transactions so positive investor sentiment can drive up property prices, especially in sought-after areas.

Conversely, negative investor sentiment, as occurred during the market downturn of 2022, can lead to a decrease in property values.

If investors believe that property prices will stagnate or fall, they may be less inclined to invest, or they might choose to sell off their properties, increasing supply in the market.

8. GOVERNMENT INCENTIVES

Government incentives can have both direct and indirect impacts on the real estate sector.

One of the most direct ways government incentives affect property values is through policies aimed at stimulating demand.

For instance, initiatives like the First Home Owner Grant (FHOG) or stamp duty concessions for first-time buyers directly increase buying capacity, leading to greater demand for property.

Another aspect is the development incentives provided by the government to promote specific types of property development, such as high-density housing or urban renewal projects.

These incentives can increase property values in targeted areas by improving infrastructure, accessibility, and community facilities, making them more desirable places to live.

Tax policies and regulations also play a crucial role.

Negative gearing can increase demand for investment properties, pushing up prices.

And every time there is talk about removing negative gearing or amending taxes including land tax, investors shy away from our housing markets.

Australian housing market predictions for 2024

The last few years have shown us how hard it is to forecast property trends, and as always there will be headwinds and tailwinds buffeting our property markets.

Currently Australia’s housing is so undersupplied that I've rarely encountered a supply-demand inflection point like this that requires such attention.

And it’s only going to get worse.

Drivers of property price growth in 2024 will include:

• Continued strong population growth at a time when we are not producing enough supply of new dwellings. This extreme shortfall will exert upward pressure on house prices and rents throughout 2024.
• I anticipate that interest rates will fall in the second half of 2024 and at some stage next year it is likely APRA will relax its mortgage serviceability buffer. This is currently at 3% and the combination of these factors will increase borrowing capacity.
• FOMO (fear of missing out) will creep in as buyers realise all the price falls of 2022 have now been made up and the media will keep mentioning new record prices being achieved.

Headwinds:

• Stretched affordability will remain an issue in 2024, however, buyers will want to get on with their lives and therefore choose townhouses or apartments over homes or move to more affordable suburbs.
• The RBA wants to lift unemployment to help slow inflation. Financial uncertainty and worries about job security will stop some buyers from making important decisions like buying a home or an investment property.
• Poor consumer sentiment was a feature of 2023, holding back property buying decisions, and until there is more certainty about our economy and confidence that interest rates have peaked and inflation is under control, it's likely that consumer confidence will remain low in the first half of 2024.

The strongest performers are likely to be Brisbane and Perth, where population growth is expected to outpace supply more than in other cities.

ANZ believes that real wage growth from early 2024 and modest interest rate easing from late 2024 will also support borrowing capacity and prices.

With the increase in value of houses strongly outpacing the apartment market recently, now with the differential in price between units and houses at the highest level on record, and with houses becoming more unaffordable for many, I can see strong capital growth ahead for family-friendly apartments in great neighbourhoods.

Here are Dr Andrew Wilson's forecasts for 2024, and he has an enviable track record of getting it right.