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December 5, 2023 by ash

By the end of next year, property prices are expected to rise 13%

Despite rising interest rates, a major bank has raised its property price forecasts for 2023 and 2024 due to a “significant supply-demand imbalance”.

NAB has revised up its near-term forecast for the capital cities after stronger than expected conditions over the past three months, now expecting prices to rise 8%, up from 4.7%.

For a total 13% growth over two years, prices are expected to rise another 5% in 2024 – unchanged from its latest forecast.

In spite of rising rates and reduced borrowing power, NAB chief economist Alan Oster said property prices remain supported by a significant supply-demand imbalance.

We expect prices to rise by around 5% in 2024 as population growth, rent growth and the labour market remain supportive, offset by the ongoing flow-through of higher interest rates.” Mr Oster said.

See NAB’s price forecasts for each capital city

At its November meeting, the Reserve Bank is expected to increase the cash rate to 4.35%, the highest in 12 years, due to higher inflation expectations.

On rates, Mr Oster expects the RBA to raise the cash rate to 4.35% at its November meeting before keeping it on hold until the second half of 2024.

We believe the RBA can ease policy back towards neutral by the end of 2024 with growth below trend and unemployment rising to around 5%.”

The unemployment rate in Australia is currently 3.6%.

Those who lead and those who lag

Over this year and next, NAB expects strong price growth across the combined capital cities, but the momentum will vary by state.

NAB expects Perth’s momentum to slow from 12% growth in 2023 to around 1% in 2024, following some of the strongest price gains this year.

In contrast, Brisbane prices are expected to surge nearly 19% over the next two years, up more than 12% this year and 6.5% in 2024.

Prices in Adelaide are expected to rise 8.6% in 2023 and 6.2% in 2024, nearly 15% over the next two years.

Forecasts for dwelling prices from NAB

In Perth, Brisbane, and Adelaide, PropTrack’s Home Price Index shows prices hit fresh peaks in September due to a lack of choice for buyers.

According to Ms Creagh, Adelaide and Perth have continued to be the strongest capital city markets over the past year, with prices rising 8.31% and 9.24% respectively.

Brisbane’s home prices have already recovered from 2022’s price falls, jumping 0.39% in September to reach a new peak.”

Despite rising 0.09% in September, Hobart remains the weakest performing market, with prices down 6.6% from March 2022 peak.

However, this follows several years of outperformance and strong growth during the pandemic. Hobart’s home prices are still up 38.4% since March 2020.”

NAB forecasts that Hobart prices will remain flat over 2024 after dropping 3.3% this year.

In 2024, Sydney’s strong momentum is expected to ease to 5% from 11.6% in 2023.

There is only one capital city expected to see prices increase next year, and that is Melbourne.

In a recent report, KMPG forecasts that house prices will rise 15% by mid-2025, while apartment prices will jump more than 9%.