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Australia’s property market faces fresh peaks and troughs with slowing prices and interest rates tipped to drop

Australia’s property market faces fresh peaks and troughs with slowing prices and interest rates tipped to drop

Australia’s “rollercoaster” real estate market faces fresh peaks and troughs in 2024 as the prospect of falling interest rates contend with a recent slowdown in price increases.

Renters, meanwhile, are experiencing smaller increases in payments, but the share of income going to rent remains at near-record levels with little relief in sight.

In 2023, data group CoreLogic’s Home Value Index rose 8.1% nationally, more than reversing the 4.9% retreat in the previous year, but far short of the 24.5% jump in 2021.

For December 2023 alone, the index’s advance eased to 0.4%, and 1.5% for the quarter as a whole. That lifted the national median price for a home to almost $758,000.

Among the major capitals, Melbourne ended 2023 with price falls in the final two months, while Sydney prices edged just 0.2% higher in December alone. Perth, Adelaide and Brisbane each ended the year at record highs, according to CoreLogic.

Change in dwelling values

The rebound of the market in 2023 defied many predictions, not least because the Reserve Bank kept lifting interest rates, actions that typically drag on property prices.

Adding impetus to demand, though, was the unexpected leap in net migration, with the tally reaching a record 510,000 in the 2022-23 fiscal year.

CoreLogic’s research director, Tim Lawless, said predicting 2024’s price trends won’t be straightforward, either, even if the RBA’s next move is likely to be a rate reduction unless inflation figures are surprisingly strong for the December quarter.

Rolling three-month change in dwelling values – state capitals. Illustration: CoreLogic

“My best guess would be that rate hikes are probably done,” Lawless said. “We’ll probably start to see some growing speculation of rate cuts through the second half of the year.”

While a drop in borrowing rates would normally be expected to spur demand, a range of factors that took some of the heat out of the market in the second half of 2023 would probably extend into this year, Lawless said. These include mounting cost-of-living pressures, worsening affordability challenges, poor consumer sentiment and a rise in advertised housing stock levels.

“We know that at least up to the end of November, listing numbers were moving to above-average levels across most of the capital cities, with the exception of Perth, Adelaide and Brisbane,” he said. Accumulating stock “could add to some downside risk for housing values”.

The government’s mid-year economic report, released last month, predicted net migration would drop to 375,000 this fiscal year and 250,000 next. Even so, given many migrants take time to buy a home, demand from this source should remain strong for a while.

Lawless said the biggest impact of reduced migration would probably be felt in the rental market, helping to ease demand.

Annual change in rents – houses
Annual change in rents – houses. Illustration: CoreLogic

Rents increased 8.3% nationally in 2023, extending a slight drop from the 9.5% pace of rises in 2022 and 9.6% in 2021. In dollar terms, dwelling rents rose about $46 a week in 2023, based on median rental values, according to CoreLogic.

While any slowdown will be welcomed by tenants, the latest increase in rents remains more then quadruple the average yearly rise during the decade before Covid.

As with home buying, Perth remains the tightest market for rents. Unit rents in the Western Australian capital rose 16.5% in 2023, adding $80 in costs for median rentals, while house rents rose 12.9%, or about $73 a week. Hobart and Canberra were two cities where rents fell.

Annual change in rents – units
Annual change in rents – units. Illustration: CoreLogic

According to CoreLogic, the portion of household income required to service a new mortgage was close to the record high of 46.2% as of September 2022, and the portion of household income dedicated to rental payments was also near its historic peak of 31%.

Lawless said it was “hard to see rents going backwards” nationally “until there’s a much more significant supply response and there still seems to be some way down the track”.

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