(August 2023 Blog) Where Are Home Prices Headed?
At the beginning of the year, the media was full of grim forecasts that property prices could plummet by as much as 25% in the downturn, as rising interest rates curbed borrowing power and reduced buyer demand.
Then, just one month later, something unexpected happened.
Property prices stopped falling. Then they started climbing, so much so that, by June, house prices across the combined capitals had already recouped 3.4% of the 5.6% they lost during the downturn, according to Domain.
This rally happened despite further tightening from the Reserve Bank of Australia that’s left the cash rate at an 11-year high of 4.10% (as of July).
You might wonder why Australia’s property markets are rebounding given that interest rates are still rising.
Well, interest rates aren’t the only factor that influences the property market cycle; rather, there are many different drivers including the economic outlook, demographic changes, governmental policies and consumer confidence.
The interplay of all these factors, ultimately, impacts housing supply and demand.
When:
Demand exceeds supply, property prices typically increase
Supply exceeds demand, property prices typically fall
Currently, Australia’s population is growing, helped by the strong rebound in migration, with the country adding nearly 500,000 people during 2022, according to the Australian Bureau of Statistics (ABS),
All these people need to live somewhere.
As the chart below shows, Domain estimates that an additional 300,000 additional dwellings are needed in the coming years just to cater for this demand.
The problem is, the country isn’t building anywhere near enough – with recent ABS data showing building approval numbers were close to decade lows in May
What will happen to property prices over the coming financial year?
Looking ahead, Domain anticipates that these supply/demand imbalances will see property prices continue to rise into next year – with some capital cities tipped to see record highs.
Sydney is expected to lead the rebound, with house price growth of as much as 9% (see table below)
Major bank NAB also recently revised its property price forecast upwards due to the market’s “surprising resilience” and now expects capital city home values to end the year up 4.7%, not down 4.0% (as previously forecast).
This forecast is based on the assumption that the RBA will increase interest rates to a peak of 4.6% by September. If rates then normalise in 2024 (i.e. they start falling) – as the bank expects – growth of 5.0% is predicted.
Seizing the opportunity
Of course, only time will tell if either forecast comes to pass. But if they are right, it suggests now could be a great time to buy an investment property (if your circumstances allow).
That’s because a 9% increase (as per Domain’s expectations) would add nearly $120,000 to Sydney’s median house value in dollar terms alone.
Looking to buy a quality investment property? As an expert buyer’s agent, A Game Property Advisory can help you secure a quality property at a good price. Get in touch with Jim by calling 0422 446 170 or emailing jim@agameadvisory.com.au.