Heading into the traditionally subdued holiday period for the real estate market, 2024 presents uncertainties for homebuyers, investors, and renters. Questions revolve around the effects of potential interest rate decreases, the motivations behind investor sell-offs, and whether the robust home price growth observed in 2023 will endure.
Despite expectations of a slowdown in price growth due to economic challenges and increasing unemployment, the PropTrack Property Market Outlook report anticipates national prices to grow between 1% and 4%, with certain capital cities potentially experiencing an 8% rise.
The focus remains on the uncertain path of interest rates, with a 425 basis point increase in the cash rate since May 2022, reaching a 12-year high at 4.35%. This surge has led to a 30% reduction in borrowing capacity. While interest rate futures predict no further hikes and anticipate a 25 basis point cut by mid-2024, the unpredictable nature of rate movements presents challenges. The property market is also grappling with vendor participation concerns, as total property listings remained low throughout 2023, with Sydney and Melbourne witnessing a notable increase in new listings in the latter part of the year. The pivotal question for 2024 is whether this trend will persist in these cities and if other major capitals will experience a meaningful rise in available housing stock.
Renters grappled with surging rental prices in 2023, driven by heightened demand surpassing available supply, leading to a diminished vacancy rate and quicker property leasing. Advertised rents for units surged by over 20% in certain cities over the past year, yet the gap between house and unit rents widened compared to pre-pandemic levels. The rental growth stemmed from robust demand and an enduring supply shortage, with more investors selling than new investors entering the market. While it’s challenging to foresee rents continuing their rapid ascent, indications suggest a likelihood of further increases in major capital cities throughout 2024.
The outlook for a resurgence in new housing construction faces obstacles as dwelling approvals remain close to decade-low levels. While material cost increases are slowing, persistent labor shortages and elevated interest expenses for development and construction, as well as potential buyers, pose challenges. The current substantial premium on new housing compared to existing homes dampens buyer interest. Despite a potential modest uptick in new housing construction in 2024, significant growth seems unlikely due to persistent material, labor, and interest costs. Concurrently, as investors exit the market, the return of new investors is expected to gain momentum in 2024, fueled by a more stable interest rate environment, increased tax-deductibility, and rising rental prices amid a slowdown in home price growth.
The participation of first-home buyers, although not reaching recent pandemic peaks, has risen in 2023, surpassing long-term averages. While servicing a mortgage is typically costlier than renting, the condition of the rental market is likely to drive more renters towards owning their homes, especially with stabilized mortgage rates. Although not all renters can make the transition to homeownership, the allure of cost predictability and the security of owning a home is expected to be appealing. The presence of numerous assistance schemes at both federal and state levels may lead to a further uptick in first-home buying activity in 2024.
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