As we step into 2024, I extend warm new year greetings to all and share some expert perspectives on the upcoming trends in the real estate market.

Entering this year, it appears that we are concluding the cycle of increasing interest rates. Observing a significant drop in inflation from its peak of 8.4% in December 2022 to 4.3% in November 2023, experts are leaning away from the likelihood of further rate hikes, even considering potential rate reductions later in the year.

 

These developments are crucial for the real estate sector. Since May 2022, the Reserve Bank’s 13 consecutive rate increases have touched many lives. Higher interest rates pose considerable challenges, especially for average and first-time homebuyers, affecting not only their ability to keep up with mortgage payments but also their initial financing capabilities.

Analyzing CoreLogic’s data, we observed an 8.1% increase in median home values last year – a remarkable feat amid rising interest rates. Notably, Perth led the capitals with a 15.2% growth, followed by Brisbane and Sydney with 13.1% and 11.1%, respectively. In regional areas, South Australia, Queensland, and Western Australia witnessed substantial value increases.

This surge largely stemmed from a supply-demand imbalance. The -5.3% dip in national median prices in 2022 led many homeowners to delay upgrading due to escalating interest rates and living costs, resulting in fewer properties on the market.

However, 2024 might paint a different picture. Historically, strong price gains often prompt more listings as seller confidence builds. Nevertheless, with high interest rates and anticipated slight increases in unemployment, we might see continued market influence if supply levels stabilize, potentially leading to a steadier market rather than replicating last year’s growth.

In contrast, the luxury market above $5 million remains robust, primarily operating on cash transactions independent of mortgage constraints.

Another significant issue is the shortfall in new home constructions. Industry professionals have long alerted authorities to the inadequate building rates, hampered by excessive bureaucracy. Recent figures from CoreLogic highlight this concern, with dwelling approvals averaging below the decade’s norm.

This shortage is evident not only in sales but also in the rental market, where increased rental supply is urgently needed. Overregulation and new taxes on property investments, particularly impacting small-scale investors, could further aggravate this situation.

A healthy property investment environment benefits everyone: it ensures sufficient rental supply for a growing population, stabilizes rent aligned with inflation and wage growth, and enables investors to self-fund their retirements, thereby easing the burden on public pension systems.

With a growing trend of investors expanding their horizons, many are exploring opportunities beyond their local regions. If you’re contemplating an investment in real estate this year, I encourage you to research and consider diverse locations across various states. Keeping an eye on emerging and promising areas can offer valuable insights for your investment strategy. Stay informed and look out for detailed analysis and suburb profiles that can guide your decision-making in this dynamic market.