Property price growth slowed as year ended, so what's in store for 2024?
National property prices rose more than 8 per cent in 2023 but showed signs of slowing as the year went on, so where should property investors be looking in 2024?
The Australian property market’s rollercoaster ride of the past few years is levelling out after the incredible surge of 2021 and subsequent retraction in 2022.
The 8.1 per cent increase in dwelling values in 2023 still represented a solid return that exceeded the high inflation rate that persisted for much of the year, but was less dramatic than the 2022 price falls of 4.9 per cent and the previous year’s 24.5 per cent explosion in prices.
In further signs of a market that is settling into a more balanced supply and demand trend, December’s 0.4 per cent increase saw 2023 finish with the smallest gain in prices since values started rising in February.
Tim Lawless, CoreLogic’s Research Director, said the heat was coming out of the market.
“After monthly growth in home values peaked in May at 1.3 per cent, a rate hike in June and another in November, along with persistent cost of living pressures, worsening affordability challenges, rising advertised stock levels and low consumer sentiment, have progressively taken some heat out of the market through the second half of the year.”
While the overall market may be cooling, there’s plenty of diversity in performance throughout the country.
Although housing values have risen across most regions in 2023, five of the eight capitals are still recording home values below record highs.
At the end of the year, according to CoreLogic, Sydney values remained 2.1 per cent below their January 2022 peak, Melbourne values were 4.1 per cent below their March 2022 peak, ACT values are still 6.3 per cent below record highs and Hobart values are down 11.2 per cent. Darwin home values are 2.8 per cent below their cyclical high in August last year, and 7.2 per cent below the record high set back in May 2014.
PropTrack, which publishes its own property price data, had the national property market increasing in 2023 at a more modest 5.5 per cent, compared to CoreLogic’s 8.1 per cent, but agreed that capital growth was slowing.
“Several factors contributed to the slowdown in home prices over the last quarter of 2023,” noted Anne Flaherty, Economist, PropTrack.
“There was an additional interest rate rise as well as an increase in the supply of homes listed for sale, which provided buyers more choice and helped to alleviate competition.
“Despite regional areas experiencing higher growth in December, combined capital city areas were the clear outperformers in 2023, with prices up 6.4 per cent over the course of the year versus 3.2 per cent in the rest of state markets.”
The diversity across the capital cities can be broadly attributed to factors relating to demand and supply, Mr Lawless said.
“In Perth, Adelaide and Brisbane, housing affordability challenges haven’t been as pressing relative to the larger cities and advertised supply levels have remained persistently and substantially below average.
“The cities where home value growth has been lower or negative through the year are showing higher than average levels of advertised supply alongside annual home sales that ended the year below the five-year average.
“Even though recent months have seen a rise in the number of properties listed for sale, overall supply remains relatively constrained, particularly in Perth and Brisbane and this has been a key contributor to price rises in these markets.”
What does 2024 hold for property values?
Population growth and the prospect of interest rates easing late in the year hint at a continued increase in property prices.
Supply constraints show little sign of easing, despite the federal and state governments introducing a raft of policies to try and address it.
The big headline policy among the many is the Albanese Government’s $10 billion Housing Australia Future Fund (HAFF), which is expected to be available in the second half of the year.
The government’s commitment to deliver 1.2 million well located new homes in the next five years is looking wobbly before it even begins.
Construction cost hikes have eased but they haven’t stalled, and builders continue to fall into liquidation around the nation, adding further stress on an already embattled industry struggling to meet existing demand, let alone the government’s high hopes.
Although another cash rate hike can’t be completely ruled out as the RBA makes a final push at quelling inflation, weakening economic conditions amid low consumption and a loosening labour market suggests it is unlikely. A reduction in the cash rate target through 2024 could help to re-stoke demand later in the year.
While the trajectory of interest rates through 2024 loom as a key factor influencing housing trends, they’re not the only game in town, according to Alex Reithmeier, Research Executive at property investment firm DPN.
“Increases in interest rates are not the only consideration for potential investors; the forces of supply and demand in the rental market are powerful and should not be overlooked,” he said.
Pre-pandemic, renters were able to manage a decade-long average of 2 per cent per annum rent rises. In 2023, nationally, rents were up 8.3 per cent. This huge hit to the household budget came on top of the 9.5 per cent rise recorded in 2022 and 9.6 per cent rise in 2021.
“From a supply perspective, the national shortage in affordable housing remains unabated and there is no short-term solution,” Mr Reithmeier said.
“While interest rate moves are targeted at lowering inflation, we are seeing growth in house prices again in many metro and regional locations, then factor in immigration.
“In the last two years, more than 600,000 new migrants have arrived in Australia and simply put, they need somewhere to live.
“This is almost a perfect storm for investors as this is largely driving rental performance, that is the ability to achieve strong rental yields, which can offset interest rates at this time.
“Couple this with economic forecasts of rate stabilisation and reduction in the next 12 to 18 months, 2024 could be a very wise time to invest,” Mr Reithmeier concluded.
2024's top three property investment prospects
DPN identified three areas across the country currently offering strong investment opportunities, despite the cash rate being at its highest level in 12 years.
Topping the list was Perth’s Wanneroo, in the northern suburbs.
“Perth’s affordability from the perspective of an interstate investor is a standout, with its median price now below 50 per cent of Sydney.”
“Above average population growth for WA and skyrocketing rentals make this an appealling market from a capital growth and rental yield perspective.”
Mr Reithmeier said Wanneroo in particular has seen 11.7 per cent capital growth annually over the last three years, and 4.5 per cent rental yield per annum over the last five years.
“A number of major transport infrastructure projects for the region have recently been completed, including the Northwest freeway extension and the Yanchep Rail extension that has improved accessibility and will provide further future growth for the region.”
It was similar picture for New South Wales’ Maitland, with population growth and infrastructure driving the market in the region between the coal mining of the Upper Hunter, and the ports and City of Newcastle.
“Benefiting from its proximity to Sydney, young families and first-home buyers are moving up to make house ownership a reality.
“Additionally, Maitland is conveniently located in the centre of the Hunter, so workers from Newcastle and those in the mines towards Singleton are finding it an ideal central spot with an established choice of schools,” Mr Reithmeier said.
Rounding out the top three was the City of Logan, situated between the major cities of Brisbane, the Gold Coast and Ipswich, where infrastructure projects such as increased rail services as part of Olympic Games infrastructure upgrades, and Logan Hospital expansion are driving property demand.