The latest property trends in Australia. Will prices drop? And where to buy?
There is endless discussion and debate over the state of the Australian housing market around the office cooler, dinner table, and in the halls of parliament.
In particular, housing affordability is now a major concern for many Aussies trying to buy a home.
Many factors affect property prices and the broader housing market, including global and local economics, housing legislation, tax policies, development incentives, migration and demographic changes, and lending requirements.
What is the outlook for the Australian property market?
Despite ongoing economic headwinds, the Australian property market continues to grow.
Despite high inflation, rising interest rates, reduced borrowing capacity, and increased cost-of-living pressures, property prices rose over successive quarters in 2023.
According to Domain data, house prices fell modestly in Melbourne in the first quarter of this year, but they rose in Sydney and all other capital cities except Darwin.
In most capitals, house price growth has slowed, suggesting that the wider property market is losing momentum.
According to experts, the underlying fundamentals of the Australian property market – chronic undersupply of new homes, strong population growth, and a tight rental market – will continue to support demand.
Housing supply will continue to be constrained in the near future as new dwelling approvals plunge to a near 12-year low.
It is likely that a reduction in the cash rate by the Reserve Bank of Australia would stimulate housing activity, while an increase would have the opposite effect.
Many buyers in the market now rely on other sources of financing than home loans, such as family help or cash.
“I wonder if the buyers who have been propping up the housing market will run out if interest rates stay at these high levels indefinitely,” he says.
What are the steps I need to take to get into the Australian housing market?
Getting on the property ladder is no easy feat, and buying your first home can be a challenging experience.
Among the topics covered in Domain’s first-home buyer’s guide are understanding finance language, setting a budget, and securing a mortgage.
But first, you will need a deposit. If you can’t afford a full 20% deposit, there are several ways to buy. It’s possible – and somewhat common now – to buy with just 10%, or even 5%, but you must understand both the risks and rewards of doing so.
For lower deposit amounts, banks can offer lenders mortgage insurance (LMI), which is insurance for the bank in case of default. You may have a parent who would be willing to act as guarantor using equity they have on their own property, or you may be able to access one of the government grants, schemes or discounts.
It is important to know what you can and cannot do when it comes to housing. Consider “rentvesting”, buying in a bridesmaid suburb or teaming up with a sibling or friend. You can obtain pre-approval from a lender or mortgage broker before starting your property search to ensure you know your limit and can move quickly to secure a property.
A mortgage broker can offer advice on saving strategies and tell you what banks look for when approving a loan early in the process.
Once you have pre-approval, it’s time to create a buying brief (your location, budget, preferred property type, “must-haves”, “nice-to-haves” and immediate red flags) and start researching and inspecting properties. Modify your brief based on recent sales in your price range and preferred areas.
In 2024, will house prices drop?
In the first quarter of the year, capital-city housing prices reached record highs in Sydney, Brisbane, Adelaide, and Perth, but declined in Melbourne and Darwin. The combined regional median house price also fell 1%.
As a result of rising costs of living, high interest rates, and reduced borrowing power, the overall rate of house price growth has slowed down in recent months.
Domain chief of research and economics Dr Nicola Powell says quarterly gains are about three times slower than the previous quarter.
However, she adds, it is unlikely to translate into significant price drops this year.
“Prices are still rising, and what it highlights is the lack of supply across the country – and when you consider that building approvals are at 12-year lows, that undersupply will continue to cause pricing pressure.”
What is the best suburb to invest in?
A property’s location is a big part of the investment process and your overall strategy. It needs to suit your goals and budget, and it needs to make financial sense.
When searching for the best suburb to invest in, many experienced and new property investors seek the advice and guidance of an industry professional.
It is still possible to find a place to live across the country even on a first-time homebuyer’s budget.
Investing in properties in another state or region should not deter investors, says Luke Harris, chief executive of Property Mentors.
Some people find peace of mind in driving past it. “But that’s why you have a property manager. Take the emotion out of it. Buy in the suburb that makes sense.”
When looking at prospective suburbs, dive into the data. Take a look at a suburb’s current and historic median house and apartment prices, as well as recently sold properties, if you’re looking for capital growth or rental income. Rental vacancy rates can help you estimate the income a property can generate, while median rental prices can suggest how strong or weak the local rental market is.
Investors can access Domain’s house price reports, rental reports, and other relevant information.
Local amenities like schools, shopping centres, parks, and healthcare facilities can all increase the value and desirability of a rental property. Due to the large workforce that is likely to be seeking homes nearby, suburbs close to hospitals are attractive.
Inquire about future development plans in the area and how they might affect your property as well.
What is causing the rise in Australian house prices?
Demand has continued to outstrip supply, despite stretched affordability and high interest rates.
According to Powell, “we’ve seen strong, strong rates of population growth run into undersupply of housing and a very tight rental market.”.
Despite rising building costs and planning delays, new building approvals have fallen to a 12-year low.
In addition, recent buyers were likely to have equity, cash, or family assistance.
According to Jarden chief economist Carlos Cacho, “the average household is no longer able to afford the average home, so home buyers are skewing much higher in income and wealth.”
CBA’s home borrowers now have a combined income above $200,000, he says, as well as a shift towards buyers with larger deposits and a drop in those with low deposits.
According to him, much of that would be intergenerational wealth transfer.