House prices are expected to continue rising in 2024, however level of growth is slowing in some markets and still going strong in others.

Although much of the COVID period between 2020 – 2023 experienced strong growth in the majority of property markets around Australia, the market has gone back to being fragmented again, with a lot of different geographical locations sitting in different stages of the Property Cycle.

As we know, the Reserve Bank of Australia hit borrowers hard over the last 18 months in a bid to tackle persistent inflation.

This week saw the RBA meet for the first time this year and put the official cash rate on hold as a result of inflation easing, which is a great relief to mortgage holders. It has started optimistic conversations with a fresh year ahead around the possibility of the next interest rate movement being a cut, as the feeling is we have reached the peak of this interest rate cycle.

The RBA will certainly not rush this as they are keen to see inflation get back down under their long term target of 3%, however some commentators feel this may be as early as mid-year.

What will this mean for property?

An interest rate cut is likely to spark demand, with a lot of potential home buyers having to ‘sit on the sidelines’ as interest rates were in an upwards cycle; affordability issues and lower borrowing power proved difficult for some home buyers to get into the market. If these buyers see interest rates stabilise and then the possibility of a cut or maybe two, this would restore some people’s confidence, seeing this as their window to get into the market with a bit of ‘FOMO’ happening – as well as the fact that rents have increased rapidly around the country and some people would certainly prefer their own mortgage over paying high rents.

There is a conversation currently being had about the possibility of easing the buffer that lenders use when assessing loans, if we could see this buffer being reduced to 2.5 percentage points. Set by the Australian Prudential Regulation Authority, the buffer is currently at three percentage points and is a safeguard to ensure homeowners can afford their mortgage repayments should interest rates rise.

Whether we see an interest rate cut or the buffer reduced, it will give greater borrowing capacity to anyone looking to purchase and will also feed into more positive consumer sentiment.

In addition to this, supporting factors like record net overseas migration, tight rental markets, low unemployment, and home equity gains, will lead to increased demand for property which will keep prices trending up.

Limited new housing construction and a slowdown in the completion of new homes (due to high costs and build times) will keep the housing supply tight, which will be further tested by our strong population growth.

In addition, the available stock on the market is set to remain tight in Perth, Adelaide, and Brisbane, where total listing volumes continue to sit well below decade averages. Because of this, I expect these markets to be the best performing markets in 2024 in terms of growth.

In Sydney and Melbourne, where total listing volumes are now back above decade averages, price growth is set to be more subdued. It’s also possible that regions like Hobart and Canberra could see a dip in values this year.

Projected Growth Forecast for Houses in 2024

Sydney: 2-5%

Melbourne: 1-4%

Brisbane: 4-7%

Adelaide: 4-7%

Perth: 6-10%

There is certainly an opportunity for property investors in several markets this year, however this does not mean that just any property in that market will deliver against your goals and objectives. If anyone wishes to discuss their position and how their strategy could take advantage of this opportunity, please reach out to us we would be happy to assist you.

Finally, a quick word on the Rental market, has it reached a tipping point?

Just as mortgage holders are getting very little relief, renters are stuck in the same basket. We are seeing a trend where more and more Australians are renting for longer and this is likely to continue in 2024.

The rental market is very tight, with vacancy rates across Australia sitting at a record low of 0.8%. Despite conditions remaining competitive for tenants nationally, there are signs of an improvement in some capital cities.

The rental market will continue to go up, however it is unexpected to be as sharp as it was in 2023 and it is anticipated to reach a tipping point in the 2nd half of this year, where rental price growth will slow and vacancy rates will slowly start to go up, but will remain tight into 2025.

It’s no doubt the last 18 months have delivered a lot of strong rental growth for Landlords, albeit really just offsetting the increase in interest we are paying on those investment mortgages, but like price growth, interest rates and inflation, etc, all these things move in cycles. Increasing rents is no different – acknowledge this is a cycle and don’t expect this trend to continue long term. 

As an investor, if you have a great tenant, it is wise to look after them, after all they are the ones looking after your property…

Category Property
Posted on 22/03/2024

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