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Key takeaways
Despite my crystal ball being a little cloudy, let’s look at eight property trends I expect to happen in 2024.
1. Property values will continue rising
2. We’re in for a 2-tier property market moving forward
3. Our economy will slowly improve
4. The “official” interest rate will start to fall
5. Strong immigration will continue
6. Rents will keep rising.
7. More property investors will return to the market
8. Property pessimists will still keep telling you the market will crash.
We experienced a wild ride in our property markets over the last few years, didn’t we?
Remember the “once in a generation” property boom of 2020-21 fuelled by virtually free money when many properties increased in value by up to 30%.
Then multiple interest rate rises and concerns about inflation led to the property market downturn of 2022, and last year, in 2023, our housing markets turned the corner with prices growing month after month recouping almost all their losses.
In fact, Australia’s housing market continues to defy expectations!
Despite 13 interest rate increases from the Reserve Bank of Australia, property prices kept rising confusing those analysts who were looking for prices to drop by 15, 20 or even 30 per cent on the back of interest rate increases.
So, what’s ahead for our housing markets?
While our property market growth is likely to slow a little moving forward the next few years are likely to deliver strong capital growth as well as stunning rental growth.
But despite the best-made predictions, if history has taught me anything, it is that there will be a hit by an unexpected X factor coming out of the blue to undo the most seasoned property forecasts, either on the upside or the downside.
So despite my crystal ball being a little cloudy, let’s look at eight property trends I expect to happen in 2024.
1. Property values will continue rising
As always, there are multiple real estate markets around Australia, but in general property values should increase throughout the next few years.
While the interplay of many factors affects property values, the main drivers of property price growth moving forward will be:
- Record population growth will continue to generate strong housing demand.’
- We are starting the year with an under supply of around 100,000 dwellings and the supply crunch is not going away any time soon. A sluggish construction sector and bureaucratic hurdles means the gap between the dwellings we need and what is likely to be delivered is unlikely to vanish overnight.
- All new dwelling will cost considerably more to build, particularly medium and high density apartments. In fact, very few new developments will come out of the ground until market prices increase sufficiently to make new projects financially viable. This means established properties have inherent equity in them because they are currently valued substantially below replacement cost.
- Rents will continue to skyrocket as we experience record-low vacancy rates.
- Consumer confidence will increase as more people realise that inflation is under control and interest rates are likely at their peak.
- Interest rates are likely to fall in the letter half of 2024, and that together, with all loosening of serviceability, buffers, and stage, three tax cuts will increase borrowing capacity and positively impact buyer sentiment .
- Wages and salary growth will also promote a return to confidence.
Recently ANZ forecast overall house prices to rise 6% in 2024 and then a further 5% in 2025.
With the increase in value of houses strongly outpacing the apartment market recently, now with the differential in price between units and houses at the highest level on record, and with houses becoming more unaffordable for many, I can see strong capital growth ahead for family-friendly apartments in great neighbourhoods.
Here are Dr Andrew Wilson’s forecasts for 2024, and he has an enviable track record of getting it right.
2. We’re in for a 2-tier property market moving forward
In 2024 our property markets will be fragmented.
In other words, not all locations will grow at the same rate moving forward.
Interest rates will remain around the current levels for some time, and the higher cost of mortgages, rent, and the cost of living will affect some people more than others.
I can see properties located in the inner and middle-ring suburbs, particularly in the more affluent suburbs and in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets performed strongly during the boom of 2020-21, as I explained affordability is now becoming an issue in these locations.
More than that, high-interest rates and the rising cost of living have adversely affected low-income earners to a greater extent than middle and high-income earners and property owners.
Remember more than half of all Aussie homeowners do not have a mortgage with most of these living in the established more affluent suburbs.
And as usually happens at this stage of the property cycle, buyers are more cautious and there will be a flight to quality properties and an increased emphasis on liveability.
The lessons from Covid haven’t been forgotten and with more of us working from home, at least part-time, housing priorities will change and some buyers will be willing to pay a little more for properties with 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.
Those who can afford it will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes reach.
3. Our economy will slowly improve
In 2022 and 2023 the RBA was on a mission to slow our economy to curb inflation.
But as inflation slowly comes under control and interest rates remain stable and eventually fall we’ll experience economic growth again.
4. The “official” interest rate will start to fall
There are likely to be no changes to the official RBA interest rate for the first half of the year, however there is always the possibility that unexpected events, such as changes in global economic conditions or domestic politics, could influence interest rate decisions.
And later this year interest rates are likely to fall.
According to the Avid Commentator Tarric Brooker, based on historic rate cut cycles over the last 50 years, the average time between the peak in mortgage rates and the RBA cutting rates is 9.8 months.
Excluding the rate cut cycle of 2008, which was precipitated by the Global Financial Crisis (GFC), the average time is 10.6 months.
Brooker suggests that assuming that we don’t see a rerun of GFC like event and there are no further rate rises, that would theoretically put rate cuts around September next year.
5. Strong immigration will continue
Australia’s population growth has rocketed back to the boom rates of the mid-1950s, increasing by 2.4 per cent in the 12 months to June, as a record half million-plus net influx of foreign students, workers and permanent settlers came to these shores.
The population rose by 624,100 in the year to June 2023.
Putting that in perspective it’s like adding one and a half Canberra’s to our population with the need for all the accommodation, services, infrastructure and schools.
Net overseas migration adding 518,100, an increase of more than 150 per cent on the previous year and the highest nominal inflow ever recorded.
And this is at a time when construction of new dwellings is slumping which means we’ll be experiencing a housing shortage not just for 2024, but also for a number of years to come.
Last December the federal government announced plans to fix Australia’s “broken migration system” and to “bring migration back to sustainable, normal levels”.
It aims “to build a migration system that earns the trust and confidence of our citizens”, or what the government calls, “rebuilding the social licence”.
The government says these changes are the “biggest reforms in a generation”.
While the reforms will “dramatically cut” the immigration intake of international students and temporary visa holders, we’ll still be seeing many permanent migrants and skilled migrants come to our shores in 2024
6. Rents will keep rising.
We’ve been experiencing a rental crisis with historically low vacancy rates and skyrocketing rents for some time now, and there an end in sight?
The national rental vacancy rate is now sitting at 1.1%, and as mentioned above our population is still growing strongly and we’re just not building enough new dwellings.
According to Eleanor Creagh, PropTrack’s Senior Economist, rental market conditions have tightened considerably in city markets.
She further explained…
“Although household sizes have begun to increase again in both capital cities and regional areas — likely because of strong rental price increases and tough conditions — that shift back to larger households (reducing rental demand) is being offset by resurgent population growth which is forecast to continue.
Data released by the Australian Bureau of Statistics this week shows Australia’s population grew by 2.2% in the year to March 2023 – the fastest pace since late 2008.
At the same time, the pipeline of new supply remains constrained, with overall approvals running at near decade lows and construction activity having slowed, worsening the cumulative housing shortfall.
Growth in the supply of new housing is limited at a time when there is already a shortage.”
7. More property investors will return to the market
So far this new property cycle has been driven by owner-occupiers and first-home buyers, but slowly more and more investors are getting in the market.
Of course, this always happens in the early stages of a new property cycle.
In time a whole new generation of investors will learn how well others have done by owning property.
They keep reading about the property price growth that those who are in property have enjoyed over the last year and that rents are rising as we are experiencing a shortage of rental accommodation.
However, if history repeats itself, and it most likely will, many of these investors will sell up within 5 years of buying their property as they realise that property investment may be simple, but it’s not easy.
8. Property pessimists
There will always be perpetual property pessimists telling us not to get involved in real estate because the market will crash.
And as has been the case for the last few decades – they will be wrong.
It will be interesting to look back at the end of the year and see how many of these trends have eventuated.
And with their forecasts of subdued growth, I can understand why some would-be investors may be questioning whether property still represents a smart investment.
On the other hand, strategic investors who have a long-term outlook will see the period of slower growth as a buying opportunity.
Note: Sure, investors may not see annual double-digit capital growth in the short term. But the slower markets will give smart investors an opportunity to buy the type of property they’d have to compete more strongly for over the last few years when there were more buyers than sellers.
The type of property that will have them looking back in 10 years’ time saying:
Boy, I bought that cheaply!
ALSO READ: A Complete Guide to Property Investment
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