Prices continue the strong run

No property booms in sight for 2024 but slow and steady growth in most cities and regional areas is forecast, according to Hotspotting’s real estate analyst Terry Ryder.

RESIDENTIAL REAL ESTATE has started 2024 with a lot of momentum. Buyer demand has become stronger over the past 12 months and most (though not all) cities and regional markets have launched the new year with considerable impetus.

So, 2024 is shaping up to be a positive year, continuing the trend that built in key markets as 2023 evolved.

I don’t expect booms, but rather steady growth in most cities and regions.

Just as 2023 defied the forecasts of economists, delivering solid price growth in most jurisdictions, 2024 will do better than the pessimistic predictions that emerged late in 2023.

Nicola McDougall, president of Property Investment Professionals of Australia (PIPA), says all the reasons for upward price pressure in 2023 remain.

“Even with the reduction in migration by the Federal government, the build-up of demand in the market will take some time to dissipate,” she says. She also believes Australians have ridden the interest-rate cycle better than many bank economists expected.

Gary Brinkworth, CEO of national property valuers Herron Todd White, agrees. “What’s most striking is that in the face of all the market levers pulling in different directions, property has proved a resilient and stable asset class for those with a long-term outlook. Values have, overall, increased and selling activity remains robust.

“This has all been founded in the lack of supply – both for sales and rentals. Without more supply, housing prices and rents will remain elevated and will likely increase in 2024.”

Additionally, as we consider the outlook for 2024, there are no remedies in sight for the core issues:

The building industry has myriad problems and can’t produce homes fast enough.

Government policies still stymie development with restrictive taxes and red tape.

As Brinkworth notes, there is a continued increase in construction costs. The price gains for a range of baseline materials have slowed but labour is now in short supply and costs remain high and timelines extended.

Policy changes are invariably detrimental to investors, which deters the cohort that supplies 90% of the homes available for rent, worsening the rental shortage. As McDougall notes, “investors are voting with their feet, getting out of states with a lot of anti-investor policies”.

Over the past two decades, State governments have not been funding social housing and have sold off properties.

Brinkworth summarises the main issues as:

“There simply isn’t enough housing to meet the demand for shelter and that’s seen vacancy rates plummet and rents ramp up. The high cost of building has reduced the supply of new accommodation, while increased compliance and taxation caused many mum and dad investors to exit the market”.

The other big factor is the steady rise in buyer activity throughout 2023. The year began with weak markets in Sydney, Melbourne and Brisbane, as well as in many regional areas. But as the year continued, sales activity picked up steadily.

At the end of 2023, seven out of 10 suburbs and towns across Australia had positive sales activity trends, according to the summer 2023-24 edition of the Price Predictor Index by Hotspotting.

This is the momentum that will create a strong start to 2024.

What buyers should consider

It’s normal for Australia to have multispeed markets – some rising, some stagnating, some falling – and that will be the case in 2024. Here are the key things to note when considering whether to buy in the coming year:

I expect Sydney, Melbourne, Brisbane, regional Queensland and regional NSW to have the strongest growth markets in 2024.

Adelaide, regional South Australia, regional Western Australia, regional Victoria and Hobart are likely to be consistent and deliver solid uplift.

Perth has been a national market leader for the past two to three years, but there are signs of its boom tapering off.

Canberra, Darwin and regional Tasmania will struggle again.

The trend of rising demand for affordable apartments will attract more media attention. The dominant paradigm of real estate, that houses on land deliver better capital growth than apartments, is under threat.

No viable solutions are being presented for the rental shortage.

Governments continue to discourage investors, and the building industry can’t build dwellings fast enough, so the pool of rental homes will likely get smaller in 2024.

As McDougall says: “It’s taken years to get to this point and it will take years to get out of this situation. We warned about this in 201415 with the Australian Prudential Regulation Authority changes to interest-only lending and then we had the Federal Labor campaign against negative gearing. So, we’ve had seven or eight years of investors being below their normal market share.”

Rents and yields will continue to rise. New housing approvals fell to their lowest levels in more than a decade in October 2023. “Unless we make concerted efforts to boost housing supply and reduce the cost of building new homes, we will continue to see the housing and rental crisis worsen,” says Denita Wawn, Master Builders Australia chief executive.

We are unlikely to see mortgage rates go much higher and some forecasters expect them to come down in 2024, which will boost sentiment but will not create a boom.

Looking back: the key influences

When Domain declared in December that 2023 was “the year that surprised everyone”, it got it wrong. The year surprised those who believe interest rates are the dominant factor, but specialist real estate analysts had correctly forecast a solid growth year for dwelling markets.

Money magazine with its Top 50 feature in February 2023, was one of the informed sources that got it right. As McDougall says: “We saw the continuation of the low supply of property, plus strong and rising demand.”

As at December 1, 2023, according to CoreLogic, the ‘year to date’ figures showed that house prices had grown 8.3% with capital cities up 9.9%, while city apartment prices rose 6.6%.

Perth led with house prices up 13.9%, followed by Sydney’s 12.5% and Brisbane’s 12.1%. South Australia, up 9.6%, was the pick of the regional markets.

The only markets that failed to record house price growth in 2023 were Hobart (down 0.7%), Darwin (down 0.9%) and regional Victoria (down 1.7%).

The different fortunes in markets across the nation in 2023 confirm that real estate is local in nature and it’s normal to have multispeed situations.

In the apartment markets, multiple locations had annual price growth between 9% and 11%, including Brisbane, Adelaide, Perth, regional Queensland, regional South Australia and regional Western Australia.

The factors underpinning price growth can be distilled to a single word: shortage. The nation is building too few dwellings, there has been a shortage of listings of properties for sale and there is an under-supply of homes for rent. Vacancies across Australia have been falling steadily for seven years (except for the 2020 Covid spike).

At a time of supply shortages, demand has kept rising, boosted by high population growth (and turbocharged by record levels of overseas migrants).

Home lending is up, with ABS figures showing October recorded yearon-year growth in new mortgage commitments. Loans for owneroccupiers, investors and first-home buyers all increased.

The much-touted mortgage cliff (people moving from low fixed rates to higher variable rates and not coping) turned out to be more of a step ladder.

Internal migration continued to be a big factor, enabled by technology that allows more people to work remotely.

The cohorts that have elevated buyer demand include affordable-lifestyle seekers, downsizers (many of them in a position to buy without a mortgage), overseas migrants and renters becoming home buyers (sometimes the mortgage payments are less than the rent).

A July 2023 report published widely in the media declared 2023 to be ‘the year of the apartment’. Real estate analyst Nerida Conisbee, chief economist for the Ray White agency network, said Australia was likely to see more people embracing apartment living, while Hotspotting has charted rising demand in locations where apartments dominate the dwelling mix. As McDougall says: “You can buy an apartment in a good suburb at half the price of houses – and many people want a lock-upand-leave lifestyle. Also, there are more immigrants coming from nations where apartment living is the norm.”