We experienced a wild ride in our property markets over the last few years, didn't we?
We experienced a once in a generation property boom in 2020-21 fuelled by virtually free money and many properties increased in value by up to 30%.
Then 12 interest rate rises and concerns about inflation led to the property market downturn of 2022, but now our housing markets have experienced six months of continual growth, recouping almost all their losses.
In fact, Australia’s housing market continues to defy expectations!
Despite 12 interest rate increases from the Reserve Bank of Australia, which have seen official rates rise by 4 per cent over the last year, property prices have not only stopped falling, but they are now on the rise.
The peak-to-trough change in Australian house prices was 9 per cent according to CoreLogic, and only 4 per cent according to PropTrack, which is confusing those analysts who were looking for prices to drop by 15, 20 or even 30 per cent on the back of interest rate increases.
While our property market growth is likely to slow a little moving forward, this is the beginning of a new property cycle and the next few years are likely to deliver strong capital growth as well as rental growth.
But despite the best-made predictions, if history has taught me anything, it is that there will be a hit by an unexpected X factor coming out of the blue to undo the most seasoned property forecasts, either on the upside or the downside.
However, let’s look at eight property trends I expect to happen in 2023-24.
As always, there are multiple real estate markets around Australia, but in general property values should increase throughout the next few years.
While the interplay of many factors affects property values, the main drivers of property price growth moving forward will be:
- Increasing consumer confidence as more people realise that inflation is under control and interest rates are likely at their peak.
- The RBA has forecast both economic growth and low unemployment and this will also boost consumer confidence.
- Wages and salary growth is also promoting a return to confidence.
- Record population growth will continue to generate strong housing demand.
- Rents will continue to skyrocket as we experience record-low vacancy rates.
- The supply of new builds is lagging way behind the demand for housing and all new dwelling will cost considerably more to build.
Recently Westpac upgraded its housing market forecast and has forecast that by 2025 Brisbane would have gone through five years of spectacular real estate growth of about 43 per cent.
By comparison, Sydney would achieve 36 per cent and Melbourne 33 per cent.
Underlining just how extraordinary the market has been, Westpac’s senior economist Matthew Hassen revised its expectations for this year for 7 per cent growth nationally, up from zero. Brisbane house prices were expected to jump 6 per cent his year.
Hassan said it was possible that high-income households were generating much of the demand in the housing market because they had been less affected by high cost-of-living pressures and had retained much of the savings accumulated during Covid.
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.
At this early stage of the new property cycle, our property markets will be fragmented.
In other words, not all locations will grow at the same rate moving forward.
Interest rates will remain around the current levels for some time, and the higher cost of mortgages, rent, and the cost of living will affect some people more than others.
I can see properties located in the more inner and middle-ring suburbs, particularly in the more affluent suburbs and in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets performed strongly during the boom of 2020-21, as I explained affordability is now becoming an issue in these locations.
More than that, high-interest rates and the rising cost of living have adversely affected low-income earners to a greater extent than middle and high-income earners and property owners.
Remember more than half of all Aussie homeowners do not have a mortgage with most of these living in the established more affluent suburbs.
And as usually happens at this stage of the property cycle, buyers are more cautious and there will be a flight to quality properties and an increased emphasis on liveability.
The lessons from Covid haven't been forgotten and with more of us working from home, at least part-time, housing priorities will change and some buyers will be willing to pay a little more for properties with a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.
Those who can afford it will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes reach.
- Also read:Boom to bust: What makes property prices rise and fall
- Also read:This week’s Australian Property Market Update – Latest Data, State by State November 28th, 2023
- Also read:Latest property price forecasts for 2023 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:The Boom and Bust of our Property Cycles: A Journey Through the Investor’s Mind
- Also read:The 10 Safest Cities to Live in Australia
The RBA was on a mission to slow our economy to curb inflation but recently in Dr Phillip Lowe’s statement after the recent pause in rate hikes, he said that inflation is likely to fall, while output and employment will continue to grow.
In other words, Dr Lowe is forecasting economic growth and no further interest rate rises, along with low unemployment plus wage and salary growth.
There are likely to be no changes to the official RBA interest rate.
3 of 4 big banks believe that the cash rate has peaked, based on their predictions for the next few years.
However, there is a possibility that unexpected events, such as changes in global economic conditions or domestic politics, could influence interest rate decisions.
These are the interest rate predictions from experts after the August 2023 RBA decision to hold rates steady:
|Expert||How High Could The Cash Rate Go?||Cash Rate Peak - When?||What then for rates?|
|Bill Evans, Westpac||4.10%||June 2023||Dropping to 2.60% by the end of 2025|
|Gareth Aird, CBA||4.10%||June 2023||Dropping to 3.1% by the end of 2024|
|Alan Oster, NAB||4.35%||November 2023||Dropping to 3.10% by early 2025|
|Felicity Emmett, ANZ||4.10%||June 2023||Then one cut of 0.25% in late 2024|
Net immigration surged to 320,000 in 2022, up from just 5,940 in 2021, resulting in increased demand for approximately 125,000 additional dwellings.
Westpac is now expecting immigration figures for 2023 to be about 450,000, further contributing to housing demand.
Capital city rental vacancy rates are below 1%, driving an increase in rents, and with very little new dwelling stock coming on line, there is no reprieve for tenants in site.
However it's likely we'll see the pace of rental growth moderate over the coming months, as cumulative rental growth pushes more renters towards their affordability ceiling.
So far this early stage of the property cycle has been driven by owner-occupiers and first-home buyers, but slowly more and more investors are getting in the market.
Of course, this always happens in the early stages of a new property cycle.
In time a whole new generation of investors will learn how well others have done by owning property.
They keep reading about the property price growth that those who are in property have enjoyed over the last year and that rents are rising as we are experiencing a shortage of rental accommodation.
However, if history repeats itself, and it most likely will, many of these investors will sell up within 5 years of buying their property as they realise that property investment may be simple, but it’s not easy.
There will always be perpetual property pessimists telling us not to get involved in real estate because the market will crash.
And as has been the case for the last few decades - they will be wrong.
It will be interesting to look back at the end of the year and see how many of these trends have eventuated.
And with these forecasts of subdued growth, I can understand why some would-be investors may be questioning whether property still represents a smart investment.
On the other hand, strategic investors who have a long-term outlook will see the period of slower growth as a buying opportunity.
Note: Sure, investors may not see annual double-digit capital growth in the short term. But the slower markets will give smart investors an opportunity to buy the type of property they’d have to compete more strongly for over the last few years when there were more buyers than sellers.
The type of property that will have them looking back in 10 years' time saying:
Boy, I bought that cheaply!
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