Getting Around Australia's Real Estate Market in 2024

The Australian real estate market had an unexpected year in 2023, and experts and analysts are examining closely the factors that drove growth in spite of forecasts of a slowdown. It was expected that the higher cost of borrowing and the scarcity of available housing would reduce demand and slow price growth. But as things actually turned out, the conventional wisdom was challenged.

Chief of Research and Economics at Domain, Dr. Nicola Powell, expressed surprise at the market's tenacity, particularly in light of the 13 rate hikes that will raise the official cash rate to 4.35% by the end of 2023. In an unexpected turn of events, expectations were reversed as Australian property prices rose due to a shortage of housing, fast population growth, a stressed construction industry, and the tightest rental market on record.

A Year of Resilient Growth:

PropTrack data shows that capital city house and unit prices grew at a 6.54% annual growth rate and a 5.42% national growth rate, respectively, in 2023. Key factors contributing to this unanticipated spike were noted as increased immigration following the Covid pandemic and a stronger demand for established homes due to the construction industry's lower capacity and higher costs.

2024 Outlook:

Even with the strong performance in 2023, analysts predict a shift in momentum by 2024. Although Dr. Powell predicts that house and apartment prices will continue to rise, perhaps by 5% to 7%, he cautions about the complex interplay of economic factors that could affect the real estate market. Population growth and undersupply may continue to drive prices upward, but buyer stress brought on by financial difficulties may offset this and reduce demand.

Economic Forecast and Rate Cuts:

According to economic projections, 2024 will see moderate GDP growth, a tight labor market, and a slowdown in inflation. Many analysts believe that rate reductions will start in late 2024. According to Eliza Owen, Head of Research at CoreLogic, 2024 will likely be divided into two halves, with a potential rebound in buyer demand in the second half in the event that interest rates are lowered. Significant rate reductions are required to bring mortgage payments down to a comfortable level, which presents a challenge for affordability.

Capital City Property Forecasts:

Divergent performance across capital cities is evident, with Sydney and Melbourne experiencing a slowdown, while Perth, Adelaide, and Brisbane maintain high growth rates. According to Owen, who cites lower advertised stock levels, higher sales volumes, and limited viability for new development projects, Perth and Adelaide are the "easy picks for out-performance in 2024."

Who's Buying Australian Property:

Less first-time homebuyers are entering the market, which is changing the makeup of property buyers. Reaching a nearly 11-year high, the market share of sales to resident owner-occupiers is increasing. The role of foreign investors in the new housing market has increased for the fourth consecutive quarter, while domestic investors are also becoming more involved.

Challenges for First Home Buyers:

With the requirement to pay a near-record 46% of median income toward servicing a new mortgage, affordability continues to be a major obstacle for first-time home buyers. Despite these obstacles, in softer market conditions, opportunities might present themselves for wealthier first-time homebuyers.

Conclusion:

The Australian real estate market is anticipated to grow positively but moderately in 2024. How successfully the country fights inflation and how that impacts interest rates and borrowing costs will dictate the course. A complex interaction of economic forces is anticipated in the upcoming year, so it will be important for investors, buyers, and sellers to keep an eye on developing trends and modify their plans as necessary.