Property forecasters start to split on 2024

Forecasters are showing signs of splitting on the outlook for house prices, especially in Sydney.

Property forecasters are splitting over the outlook for house prices in 2024 with the biggest division coming over the prospects for Sydney.

In the space of a week the leading property research agency SQM has put forward a base case where prices in the NSW capital fall by up to four per cent while real estate group Ray White believes the city will manage a lift of ‘at least 5 per cent’.

The forecasters are dividing on whether higher rates will cool prices in the larger cities, which have been stoked by rising immigration and a very low vacancy rate.

The split between SQM and Ray White is all the most interesting because the two groups are specialists in the residential sector, and the contrasting predictions were made after the Reserve Bank’s controversial decision earlier this month to lift rates again by 25 basis points to 4.35 per cent.

Property forecasters are splitting over the outlook for house prices next year, with the biggest division coming over the prospects for Sydney. Picture: Richard Dobson

The differing views on the outlook for the market comes as clearance rates – a key indicator of property market health – have been falling in the final stretch of the 2023 auction season.

National preliminary clearance rates dropped from nearly 69 per cent to 66 per cent over last weekend – the lowest since mid-March. A healthy clearance rates is at least 70 per cent.

SQM hit the headlines a week ago when it suggested the nation’s top housing markets would see a decline in prices next year – For the city of Sydney, SQM – led by Louis Christopher – has a base case scenario of flat to minus 4 per cent. For Melbourne, it forecast minus three to plus one per cent. For the Capital city average, the forecast was minus one per cent to 3 per cent.

But Nerida Conisbee, the chief economist at Ray White, told The Australian: “Over the next year, it is likely we will see similar rates of growth to this year. There will be areas of weakness. Similarly, there are problems for many investors with more selling to pay down debt.

“Nevertheless, this won’t be enough to push down prices at a capital city level. Sydney house prices are likely to rise by at least 5 per cent. Melbourne will be marginally weaker given slower economic conditions in that state, likely at around 4 per cent.”

This time last year, most forecasts expected house prices to soften across 2023, yet the market defied all negative expectations with eight consecutive months of rising prices.

Ray White’s chief economist, Nerida Conisbee.

For 2024, the outlook is reversed, with the major banks and brokers broadly calling a moderate lift in nationwide house prices of around 4.5 per cent.

However, changes to both immigration levels or interest rate settings can trigger ‘revisions’ to economist forecast at any time.

“Australian prices have risen by 6.7 per cent over the last 12 months, driven by a major imbalance between housing supply and population growth – this imbalance will not be fixed in 2024,” said Ms Conisbee.

“Over the next year, it is likely we will see similar rates of growth to this year. Right now, investors aren’t very active. Interest rates are too high and there are a lot of impediments to owning a rental property relative to other investments. While this should improve marginally next year, there will remain a shortage.”

Originally published as Property forecasters start to split on 2024