A great outlook for the property market in 2024, and why it is likely to trend that way.
A select number of capital city and regional areas remain primed for significant rent increases and capital growth even as politicians bicker and grandstand.
There is still a strong focus on where property prices are headed after a recent holiday and time spent with friends.
Currently, the market sentiment is indecisive.
People’s expectations of long-term growth have been conflicted with rising interest rates over the last three months, resulting in inconsistent price trends around the country.
There has been steady growth in Sydney and Brisbane over the past year, while Perth and Adelaide have experienced gains. Meanwhile, Melbourne is emerging from the doldrums, while Hobart, Darwin, and Canberra are faltering.
In regional centres, only South Australia and Queensland have done well of late, but there are signs of life elsewhere, as we discuss in this article.
In 2024, where will property prices go?
Around March 2023, commentators gloomy about property were surprised by a spurt of price growth.
Until the RBA’s last two rate rises tempered the optimism, optimism spread from Sydney to other centres.
How can we predict what to expect in 2024?
We can start by reviewing the factors we know will play a role and making judgements about how they will play out.
One variable is the so-called mortgage cliff, in which borrowers move from low fixed rates of around 2 percent to variable rates between 5.6 and 6.2 percent.
I expect rental growth to hit double digits in 2024.
– Miriam Sandkuhler, CEO, Property Mavens
The process has been ongoing for some time, but no major impact has been seen on the property market so far.
While payments have increased an average of $900 per month for these households, banks are reporting much lower levels of arrears than in 2019.
Mortgage cliff areas tend to be on the outer fringes of our capital cities and in large regional centers, such as Ipswich in Queensland.
I do not expect a tidal wave of defaults. What’s more likely is a ratcheting up of pressure in areas with higher debt loads and among owners with lower equity.
Cash-rich buyers’ rise (and fall)
Buying homes for cash (i.e. without a mortgage) has been one of the more interesting trends this year.
The PEXA property transaction agency reports that a quarter of all buyers on the eastern seaboard settled with cash, particularly in country areas, but also in Sydney, Melbourne, Brisbane, the Gold Coast and Sunshine Coast.
It appears overseas investors are returning, as there has been a strong cash purchase rate in central Sydney and Melbourne, as well as a heavy cash buying of vacant land in the outer suburbs.
But it’s the cashed up Baby Boomers who have been driving most of the growth, especially in provincial areas like Maryborough (Qld) and Taree (NSW) and suburbs like Broadbeach(Qld), Frankston (Vic), and Kellyville (NSW).
While these buyers have been a strong influence this winter, I expect that to wane somewhat over the next year.
Nonetheless, it serves as a reminder that today’s market is less likely to be shaped by couples purchasing with a 10 per cent deposit. If you want to understand where the market goes next, start by tracking buyers with significant resources.
Home loans bouncing back?
Interest rates were a game changer in 2023, checking the market’s growth mid-year.
But have rates peaked? After a year of rises every month, the RBA has now lifted rates in only three of the last five months, meaning we are likely near a peak.
These rises have had a big impact on the number of home loans approved, typically a reliable sign of how prices are likely to travel over the next six to 12 months.
But it’s interesting to note the value of mortgages has only retreated to its level of 2019. And while the speed of that decline has been rapid, it has now stopped and could be starting to trend upwards.
Rent juggernaut continues unabated
While politicians bicker and grandstand, the residential market remains primed for significant rental growth.
Some investors asked me recently whether the Albanese government’s plan to build 30,000 social housing units would have any impact on market rents.
API Magazine examines how rent caps and freezes have worked overseas and presents the arguments for and against proposed policy measures aimed at easing the rental and housing crises.
While undoubtedly great for the people who will be housed, this plan is unlikely to have any discernible impact on rents.
The Rudd Government pursued a similar housing initiative in 2009. It delivered 20,000 units yet did little to alter rents or housing affordability.
As I wrote recently, the factors driving the rental market are structural and to date, nothing has been done to change the dynamic.
Over the last year, rents surged from their 15 year average growth of 3.5 to 6.7 per cent, according to the Australian Bureau of Statistics.
I expect rental growth to hit double digits in 2024.
For landlords, the key period to watch is February and March. In most centres, something like 30 per cent of lease agreements roll over in these two months and that’s when we will see how big the rises will be.
Property market rollercoaster
We expect the rollercoaster ride with Australia’s property prices to continue.
While the overall number mightn’t look that great, below the surface the dynamics will be fascinating.
This year’s growth spurt kicked off with family homes in Sydney’s middle ring and was driven through winter by areas like Melbourne’s prestigious Bayside.
That growth ended with a thud in the outer ring mortgage belt and many of the small regional centres that were the unlikely stars of 2021 and 2022.
In 2024, I expect most of the high performing areas to be inner and middle ring suburbs of capital cities and in larger regional centres like Newcastle, Geelong and Ballarat.
Rent rises will play a much bigger role in 2024 than we’ve become used to, attracting investors and encouraging some renters to try and buy into the more affordable sectors of the market.
The overall market will produce lukewarm results but rewarding returns for shrewd investors.