Approaching the typically serene holiday season for the property market, uncertainties loom for homebuyers, investors, and renters in 2024.
Will interest rates decline, and if so, what implications will that have on the market? The reasons behind investors selling out raise questions about the impact on renters. These 7 queries outline the challenges confronting the housing market in the upcoming year.
1. Will the strong home price growth of 2023 persist?
Property prices in 2023 exceeded expectations showing a 5.5% national increase despite earlier predictions of a decline. In 2024, despite a slow economy and expected rising unemployment, the rate of property price growth is projected to slow down, according to the Prop Track Property Market Outlook report.
Forecasts indicate national price growth between 1% and 4% with certain capital cities possibly seeing an 8% increase. Strong demand and limited stock may prevent a price decline, but growth is expected to be slower than in 2023, aided by stable interest rates and a shortage of new housing stock.
2. Will interest rates fall and if so, when?
Since May 2022, the cash rate has risen by 425 basis points, reaching a 12-year high of 4.35% from a historic low of 0.1%. Due to these rate hikes, borrowing capacity has dropped by approximately 30%. Predicting the future path of interest rates is challenging, given the uncertainty surrounding inflation. Despite inflation being beyond the target range, it appears unlikely that rates will be cut in the short term, and the possibility of additional rate hikes persists.
3. Will more vendors come to market?
Throughout 2023, the total number of properties for sale has remained at low levels the PropTrack Listings Report shows, as it has throughout recent years. From the middle of the year there has been a large increase in the number of new listings that have come to market, however, this was largely driven by Sydney and Melbourne. Other major capital cities have seen persistently low volumes of new listings.
4. Is there going to be any relief for renters?
In 2023, rental prices surged due to high demand surpassing available supply, resulting in a reduced vacancy rate and faster property leasing. Strong demand and a persistent supply shortage, fueled by increased investor selling, contributed to the growth in rental prices. Despite the challenging pace of rent increases in the past year, it’s challenging to envision a slowdown, and it is expected that rents in major capital cities will likely continue to rise in 2024.
5. Will new housing rebound as construction cost escalations ease?
Although material cost escalations are slowing, persistent labor shortages continue to pose challenges. The cost of new housing typically carries a premium compared to existing homes, and currently this premium is larger than usual dissuading people from purchasing new properties. Despite a potential moderate increase in new housing construction in 2024, significant growth is challenging.
6. As investors leave the housing market, will new investors replace them?
Despite the exit of some investors, 2023 saw a return of new investors to the market. The anticipation of a more stable interest rate environment in 2024, along with increased tax-deductibility due to higher interest rates, is making property investment more attractive, especially as home price growth slows.
7. What will happen to the first home buyer?
Despite being below the peak levels seen during the pandemic, the number of first home buyers has increased in 2023 and is currently above the long term average. While servicing a mortgage is often more expensive than renting, the condition of the rental market is anticipated to motivate more renters to consider buying, especially as mortgage rates stabilize. Various assistance schemes at both the federal and state levels may contribute to a further strengthening of first home buying activity in 2024.
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