Key takeaways
Dwelling prices grew by around 7% in 2023, but performance was mixed across housing markets.
A more modest rise in house prices is expected in 2024
Melbourne and Perth are expected to be the best performing regions
House prices across Australia bounced back in 2023, much to the surprise of most analysts.
The annual growth (of around 7%) was near the long-term average.
The rise was broadly the same across houses and units.
This followed a couple of years when standalone houses strongly outperformed units in 2020 and 2021 before underperforming in 2022.
House price-performance was more mixed across disaggregated market segments.
Growth was strong across the Queensland, South and Western Australian housing markets.
Dwelling prices grew robustly in Sydney, less so in regional New South Wales.
The increase in Melbourne property prices was modest and negligible in regional Victoria.
The Tasmanian, Northern Territory, and Canberra markets were soft.
Dwelling price change (annual % change to Dec 2023)
| City | Houses | Units | Regional | Houses | Units |
| Sydney | 13 | 8 | NSW | 3 | 2 |
| Melbourne | 4 | 3 | Vic | 0 | 0 |
| Brisbane | 12 | 14 | Qld | 11 | 13 |
| Adelaide | 9 | 12 | SA | 12 | 8 |
| Perth | 19 | 14 | WA | 11 | 16 |
| Hobart | -1 | 1 | Tas | 1 | 2 |
| Darwin | -1 | -4 | NT | -1 | -8 |
| Canberra | 1 | -1 |
Source: Corelogic, BoQ calculations
Longer-term performance
Differences in dwelling price performance between regions can last for longer periods.
Over the past five years Melbourne, Perth, and Darwin underperformed the capital city average (Adelaide, Canberra, and Hobart did better).
Over the past ten years, Perth and Darwin underperformed.
Sydney and Hobart did best.
The reason for the variation in outcomes is differing economic performance and valuation.
The strong performance of Hobart was the result of its low starting house price relative to that of the mainland capitals (and the decent performance of the Hobart economy).
The underperformance of the Perth and Darwin markets was due to the end of the mining boom (the Perth and Darwin markets did very well during the mining boom).
The difference in house price performance between capital cities was only modest over a twenty-year horizon (Hobart again was the clear winner).
The evenness of the performance over a longer time frame may reflect that fiscal and monetary policy have broadly the same impact across the states.
Inter-state population movements are driven by the performance of regional job markets and differences in housing affordability.
The result is that over a long period, these factors have tended to even up house price outcomes.
Annualised price growth by capital city
| City | 5 years | 10 years | 20 years |
| Sydney | 7.2 | 7.6 | 5.6 |
| Melbourne | 3.8 | 5.7 | 5.8 |
| Brisbane | 7.8 | 5.6 | 5.9 |
| Adelaide | 8.3 | 6.1 | 6.1 |
| Perth | 4.2 | 1.6 | 5.6 |
| Hobart | 9.6 | 7.6 | 7.9 |
| Darwin | 3.2 | 1.0 | 5.6 |
| Canberra | 7.9 | 6.8 | 5.8 |
| Average | 7.5 | 5.7 | 5.8 |
Source: CoreLogic, BoQ calculations
The relatively consistent performance of house prices across capital cities has been a feature of the past forty years.
The proportion difference between Sydney and other capital city house prices has tended to fluctuate around a stable average, with cyclical movements reflecting changes in regional economic and house price valuation differences.
The performance of the Perth and Darwin markets does differ from that of the other capital cities reflecting the greater distance of those two capitals from the major population centres on the East Coast, as well as the greater importance of the mining industry in the Western Australian and the Northern Territory economies.
Differences between house price performance over time periods are also evident at a more local level.
Over the past five years, the average price rise in the LGA’s in the outer areas of the major capital cities was greater than for LGA’s closer to the city centres.
Affordability was a factor, as well as the shift to WFH (creating the need for more space at home and the lower cost of commuting).
That outperformance disappeared when measured over a ten-year period in Sydney and over a twenty-year time frame in both Sydney and Brisbane (the outer suburban areas outperformed in Melbourne across time periods).
Why has there historically been less difference in performance between inner and outer regional LGA’s in Sydney compared with the other major East Coast capitals?
I suspect that it is down to topographics', with Sydney being surrounded by water and mountains and therefore making the commute from outer regions more difficult.
It is possible that the WFH shift and affordability worries could result in a sustained outperformance by the Sydney outer regional LGA’s.
Time will tell.
Average annual standalone house price change across East Coast capital cities
| Region | 5 years | 10 years | 20 years |
| Sydney LGA’s within 60km | 6.1 | 8.2 | 5.8 |
| LGA’s 60-12km Sydney | 7.0 | 8.2 | 5.7 |
| Melbourne within 60km | 4.3 | 6.5 | 6.3 |
| LGA’s 60-12km Melbourne | 10.0 | 8.2 | 7.0 |
| Brisbane within 60km | 9.1 | 6.1 | 6.4 |
| LGA’s 60-12km Brisbane | 9.5 | 7.1 | 6.3 |
Source: CoreLogic, BoQ calculations
This pattern of house price divergences minimising over time is also clear when examining the standard deviation of annual house price growth (or the typical difference between house price performances) within regions.
Given the similarity of economics within a region house price performance is then largely driven by affordability.
The lower standard deviation within inner city LGAs reflects the greater similarity of the economies of city LGA’s relative to the economies of the LGAs of outer regional regions.
Standard Deviation
| Region | 5 years | 10 years | 20 years |
| Sydney LGA’s | 1.3 | 0.7 | 0.6 |
| LGA’s 60-12km Sydney | 1.5 | 0.7 | 0.4 |
| Melbourne | 2.0 | 0.8 | 0.5 |
| LGA’s 60-12km Melbourne | 1.9 | 1.1 | 0.7 |
| Brisbane | 0.8 | 0.6 | 0.6 |
| LGA’s 60-12km Brisbane | 1.7 | 2.0 | 0.8 |
Source: CoreLogic, BoQ calculations
Implications
In the short term, there can be big differences in price performance between different housing regions.
The problem though is picking the time of these moves.
Most economists thought that house prices would decline in 2023.
In the event, they rose by 7%.
Over long-term horizons (greater than 10 years) differences in price performance between regions have historically been more modest.
In some circumstances, differences can emerge if there are longer-term structural changes taking place (such as the affordability differences between city and regional LGA’s in Melbourne).
Forecast for house prices for 2024 and for 2025
Average house price growth Australia-wide is likely to be lower in 2024 than it was in 2023.
Household disposable income growth will be constrained for much of this year.
Partly this will reflect further weakening of the jobs market.
And I am not forecasting interest rate reductions until the end of this year.
The lack of new supply puts a floor as to how far house price growth can slow (at least without substantial changes in interest rates or the unemployment rate).
If interest rate cuts take place earlier (and are more aggressive) than I currently anticipate then house price growth will be stronger.
Stronger house price growth is likely in 2025 as interest rates are reduced and the economic outlook improves.
I expect that the biggest rise in standalone house prices in 2024 will be in Melbourne and Perth, the two cities that I think currently provide the best value (such as comparing rental yields with the level of long-term interest rates).
Melbourne's price performance last year was modest by capital city standards.
The Perth market is only now recovering from the fallout from the end of the mining boom.
Perth housing prices will also be supported by constrained new housing supply, as well as WA having the second lowest state unemployment rate.
The Sydney housing looks the most expensive and so is likely to underperform.
Adelaide and Brisbane prices have moved substantially over the past couple of years and I would expect price movements in those two cities to be more in line with the national average this year.
The Hobart, Canberra and Darwin markets have been soft over the past couple of years.
I look for those three markets to do relatively better in 2024 although I think that another year of below-average growth is likely.
Annual % change in standalone house prices
| City | 2023 (a) | 2024 (f) | 2025 (f) |
| Australia | 7 | 4 | 7 |
| Sydney | 13 | 3 | 5 |
| Melbourne | 4 | 7 | 9 |
| Brisbane | 12 | 4 | 6 |
| Adelaide | 9 | 4 | 6 |
| Perth | 19 | 8 | 7 |
| Hobart | -1 | 3 | 7 |
| Darwin | -1 | 3 | 5 |
| Canberra | 0 | 3 | 6 |
Note: Numbers are for standalone houses and are annual % change end of December. Forecasts are based on CoreLogic house price data. Forecasts are by BoQ Economics.
We really do live in interesting times.
Guest Expert: Peter Munckton, Chief Economist, Bank of Queensland, Twitter: @petermunckton
