Australia’s property market is often a hot topic for discussion, particularly as it has experienced several fluctuations over the past few years.
Take the recent rebound in property prices in 2023, for instance, which saw the combined value of Australian housing stock hit the $10 trillion mark for the second time in the June quarter, according to the Australian Bureau of Statistics (ABS).
This recovery came hot on the heels of the deepest downturn on record, with CoreLogic’s national home value index plunging 9.1% from peak to trough.
So whether you are a Sydney first home buyer or are looking for a mortgage broker in Sydney to help you refinance your home loan, you might be wondering what’s in store for the Australian housing market over the next couple of years.
This blog aims to answer this question by first examining why Australian property prices are currently rebounding, given higher home loan interest rates.
This should, in turn, help inform the subsequent look at recent forecasts from market commentators such as Domain, Westpac and NAB.
Sydney first home buyers, in particular, could do well to note the projected market trends.
A Closer Look at Supply and Demand Dynamics
Historically, there’s been an inverse relationship between property prices and interest rates. As a result, many anticipated that the Reserve Bank of Australia’s (RBA) series of interest rate hikes that began in May 2022 would dampen housing demand as home loans become more expensive.
But while the RBA’s 400 basis points worth of tightening did initially slow down the market, property prices began a recovery in March 2023, when they posted a 0.6% month-on-month rise, according to CoreLogic.
The resilience, even amid higher home loan interest rates, underscores the complex dynamics of the Australian housing market with many factors at play.
One of the prominent driving forces behind this rebound has been a mismatch between supply and demand.
Demand for housing is currently booming, with a post-pandemic surge in migration playing an undeniable role in the property market’s bounce-back. Recent ABS data shows that the country’s population grew 2.2% to 26.5 million people in the 12 months to March 2023, with net overseas migration accounting for 81% of total growth.
However, the supply side presents a stark contrast. Recent ABS data shows building approvals are trending downwards, with the total number of dwellings approved in July 2023 plummeting close to decade lows.
The housing shortage has been further exacerbated by the collapse of several small and medium building companies alongside rising construction costs, which surged 30% between March 2020 and March 2023 in Sydney and Melbourne, according to KPMG Australia.
This, in turn, is putting upward pressure on prices. That’s because, much like any other market, Australia’s property markets are subject to the law of supply and demand.
This means:
- When demand exceeds supply, home values typically rise
- When supply exceeds demand, home values typically drop
The imbalance is expected to continue, with the National Housing Finance and Investment warning in its most recent State of the Nation report that Australia is facing a housing shortfall of more than 160,000 homes over the next decade.
What to expect in 2024 & 2025
Looking ahead to 2024 and 2025, many market commentators paint an optimistic picture for the Australian housing market. As the table below shows, Domain expects the recovery to extend into 2024, driven by migration. Sydney is set to lead the rebound with the median house price forecast to grow by as much as 9% higher than its June 2023 value. Sydney first home buyers take note as this could take the median price to over $1.6m, a new record
The End of Mortgage Repayment Deferral
Westpac’s outlook is also particularly optimistic, forecasting a 7% rise in prices by the end of 2023, followed by another 4% in 2024. Once again, Sydney is expected to lead the major capital cities, with 10% price growth for this year, followed by 6.0% in 2024 and 4.0% in 2025
Resumption of Monthly Payments
Not to be outdone, NAB has predicted that the national market will grow 4.7% this year, with a further 5.0% pencilled in 2024.
As the table below shows, the major bank expects Sydney’s home values to see gains of 6.9% and 4.9% over this year and next.
Impact on Your Budget
All three forecasts discussed above are based on the assumption that the RBA will begin cutting the cash rate in 2024. This, in turn, should see home loan rates start to fall, supporting a further uptick in prices.
Keep in mind that while these forecasts can provide an indication of the market’s direction, nothing is guaranteed, particularly as global economic trends and government policies can influence outcomes.
Conclusion
The Australian housing market’s recovery appears to be in full swing, with many market commentators predicting the price gains to continue, as increased immigration and an undersupply of homes fuelling the upturn. With Sydney expected to lead the rebound, now might be a good time to invest in the city’s housing market.
For Sydney’s first home buyers, it’s essential to stay updated on market trends and compare various home loans to find the best fit. A mortgage broker in Sydney, such as Loan Station, can help by giving you expert home loan guidance tailored to your unique circumstances.
Ready to make your move in the property market? As an expert mortgage broker in Sydney, Loan Station can help you find the right home loan. Get in touch by filling in this form or emailing us at info@loanstation.com.au.