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.
Of course this offers an astounding real estate investment window of opportunity.
Sure there are unknowns and risks ahead, but there are also five certainties for our housing markets now:
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.
What's ahead for property in 2024?
Well, now that we've got a few months of the year under our belt it's clear that many markets around Australia are likely to experience significant growth over the year driven by a confluence of factors that will underpin strong demand for well-located properties.
It is now clear that our housing market has defied many doomsday forecasts and has moved into the recovery phase of the property cycle, making the 2022 property downturn one of the sharpest but shortest ones in history.
Currently, Australia’s housing is so horribly undersupplied that I've rarely encountered a supply-demand inflection point like this that requires such attention.
Locating an available property is already more elusive than finding the missing car keys.
And it’s only going to get worse.
Of course, this offers an astounding real estate investment window.
Sure there are unknowns and risks ahead, but there are also five certainties for our housing markets now:
- Inflation will stick around a little longer than the RBA would like
- Interest rates will eventually fall
- The scarcity of dwellings for both purchase and rent will not go away any time soon.
- Rents will keep rising
- Astoundingly good demographics and strong population growth will keep fuelling demand for housing.
These 5 profitable real estate tailwinds create a window of opportunity for investors before falling interest rates, create a property market reset later this year, but let's look back at the history of property prices to help you look forward.
Firstly it's important to recognise that property is a long-term investment and value growth compounds over time, so it’s fair to say that the sooner you start investing in property, the better you’ll end up financially.
Now that’s not fair!
This is what I can hear new investors say.
Of course, I can understand your frustration if you see our property markets surging ahead and you don't have the funds to get a foot on the property ladder.
And to compound it somewhat, I’ll share with you this titbit of information one of my mentors taught me many years ago...
The best time to get into real estate was 20 years ago.
However, I would add:
The second best time is today.
Of course, who wouldn't like to buy their parent's house for the price they paid for it years ago?
Until we master the scientific breakthrough of time travel, it’s not possible to go back in time and buy property while it’s still “cheap”.
But if that were possible, we could snag some absolute bargains.
If we take a look back at what real estate prices were like a few decades ago, the facts and figures are eye-wateringly appealing.
How I started investing in the early 1970's
In 1973, the median house price in Sydney was just $27,400.
Renting would cost you an average of $26 per week, and according to the Australian Bureau of Statistics (ABS), the average weekly wage was $111.80.
Buying a house at this time in Brisbane costs $17,500 and in Melbourne, it would set you back $19,800.
The first property I bought in Melbourne in the early 1970's cost me $18,000.
I went halves with my parents and we got $12 a week in rent - and we were excited!
And if you were to purchase the average house in Canberra back then, it would cost you around $26,850, whereas a house in Hobart would’ve seemed a steal at the low median of $15,200.
As for Perth and Adelaide, the housing market was affordable with a median of $26,850 and $16,250, respectively.
Compare that with the pricing of houses these days, and it’s a vastly different story.
According to housing data from CoreLogic, median house values at the end of December 2023 were:
- Sydney — $1,128,322
- Canberra — $843,171
- Brisbane — $787,217
- Melbourne — $780,457
- Adelaide — $711,604
- Hobart — $656,947
- Perth — $660,754
- Darwin — $496,309
The first thing we can deduce...
In the space of 50 years, all capital cities have recorded massive price growth.
Some have performed better than others, clearly.
But the fact remains that anyone who bought a property in 1973 and still owns it now, has profited very handsomely from their investment.
The second thing we can deduce?
Time in the market, not timing the market, is a surefire strategy for success when you’re building wealth for your future.
- Also read:Everything you need to know about the state of Australia’s property markets in 20 charts – November 2024
- Also read:This week’s Australian Property Market Update – Latest Data, State by State November 19th 2024
- Also read:Melbourne property market forecast for 2025
- Also read:Sydney property market forecast for 2025
- Also read:Brisbane’s property market forecast for 2025
There are a number of factors that influence property prices, but in particular, our population growth, the increasing wealth of our nation, and falling interest rates over the years (excluding the last couple of years) have driven up real estate values.
But things have changed recently...
- Inflation is under control, but will still remain relatively high for a few years yet.
- While interest rates may have peaked, they are still higher than they've been for a while.
- Wages growth is not keeping up with inflation.
- Banks are still making it hard to borrow because they need to add 3% to the current interest rate to assess your borrowing capacity.
So can property values still keep growing?
That's a good question, considering there are still many economic headwinds that will affect us as some parts of the Australian industry.
But there will also be a combination of growth drivers that should lead to a period of strong property price growth in 2024 with a confluence of the following:-
- Surging migration creates an unprecedented demand for dwellings
- Very few new building in the pipeline and any new construction will have to be considerably more expensive to make it financially viable
- A relatively strong Australian economy with historically low unemployment rates
- Federal and State Government spending, initiatives, and infrastructure projects
- Relatively low levels of stock of properties for sale
- Historically low vacancy rates and skyrocketing rents
- The security that interest rates have peaked and will eventually fall.
- A return of international demand for Australian property
Thinking strategically, this means that now, at the early stages of a new property cycle will be a window of opportunity for savvy investors to really amplify their wealth position.
I went on record late in 2022 saying that our property markets would reset in 2023.
In fact, it happened a little earlier than I anticipated and property values have been steadily increasing month after month since early this 2023.
In fact, we're already experiencing FOMO (fear of missing out) in some markets which is pushing property values even higher.
And for those worrying can property values keep increasing remember how Sydney property prices increased from around $27,000 in 1973 to over $1.1 million in 2023 — can you imagine where they will be a few decades from now?
Note: For many. now could be the best opportunity in decades to get into the property market!
It is likely the confluence of multiple growth drivers will lead to continued property price rises throughout 2024, but price growth is likely to be a little slower than the double-digit growth many markets experienced in 2023.
While average capital city home prices are likely to rise by around 7% this year and a little less next year, making such broad-brush statements can be misleading.
It is likely that houses will outperform apartments, and while currently, all segments of the market are performing strongly, higher-end, more expensive properties are likely to outperform the cheaper segments of the market where high-interest rates, the cost of living and low wages growth will bite..
Investor interest is already picking up, and as they return to the market, as they always do as the cycle moves on, this will extend the length of our property price boom.
As the news gets better for property and the media reports rising auction clearance rates, rising house prices and increasing consumer confidence, a whole group of new buyers will also enter the property market, buoyed by a strengthening economy, growing employment, and renewed confidence in the direction Australia is heading.
This will serve to increase competition for property which will potentially drive up prices and most importantly, absorb quality stock, making it harder for you to secure a solid investment.
This is likely to happen for two main reasons:
1. Confidence. When we are more confident about our financial future, interest rates, inflation and our jobs we make big buying decisions such as purchasing new homes or investments.
2. Competition will increase as buyers return to the market.
We’re in for a 2-tier property market
Now don’t get me wrong. Not all property markets will rebound strongly this year.
Properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, will outperform cheaper properties in the outer suburbs.
The reason is, that the rising cost of living, higher mortgage costs and rents have adversely affected low-income earners to a greater extent than middle and high-income earners, while many affluent Aussies who have paid off their mortgage have not been hit at all.
High-rise apartment towers which were already suffering from the adverse publicity of structural problems prior to COVID-19 will now become the slums of the future as they are shunned by homeowners and investors.
And like after every downturn, there will be a flight to quality properties and an increased emphasis on liveability.
As their priorities change, some buyers will be willing to pay a little more for properties with “lifestyle appeal” and 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.
To many, liveability will mean a combination of:
- Proximity – to things like parks, shops, amenities and good schools
- Mobility – access to good public transport (even though this may be less important moving forward) or a good road system
- Access to jobs
The bottom line is that for those with a secure job and who have their finances under control, now could be the best opportunity in a decade to set themselves up for the opportunities that will present themselves as our property market heads into a perfect storm with a confluence of growth drives in 2024.
It should come as no surprise that getting a good team around you will be an important investment and not an expense and should allow you to build a property portfolio that will go a long way to replacing their income in the future.
At the same time, you must learn that property investing is not a get-rich-quick scheme and to achieve your future financial goals you will have to slowly build a substantial asset base and not chase short-term cash flow as many beginning investors do.
Final tips so you’ll know exactly how to invest
- Formulate a plan: understand your end goals – what you want to achieve – and then make investment decisions accordingly.
- Be cautious: You’ll find everyone is happy to give you advice. Rather than listening to well-meaning friends, it’s important to only listen to people who have achieved the financial independence you’re looking for and who’ve maintained it through a number of property cycles.
- Understand the difference: between a salesperson and an advisor. Many salespeople are cloaked as advisors and while they suggest they’re representing you, in fact, they are representing the seller or a property developer. Only take advice from someone who is independent and unbiased rather than someone who is trying to sell you something.
- Be prepared to pay for advice: I’ve found that good advice is never expensive. In fact, it’s much cheaper than learning from your property investment mistakes.
- Not everything that glitters is gold: often when you start out it can be tempting to see opportunities everywhere. The problem is you don’t yet have the perspective to decide what is a good investment and what is not.
The property doesn’t discriminate; it doesn’t care who owns it.
The residential property market is worth well over seven trillion dollars today and over the next decade, it will increase in value by billions and billions of dollars.
If you get it right, you can have your share.
