Shock outlook for property markets in 2024 after a bumper year of price growth and surging demand

After an unprecedented year in virtually all housing markets across Australia, experts have offered their forecasts for what lies ahead.

Despite record-high home prices, a painful cost-of-living crisis, the potential for further interest rate hikes and uncertainty about the domestic and global economies, experts have delivered a surprising outlook for Australia’s property markets in the year ahead.

Data researchers and economists at the big four banks have offered up their forecasts for real estate price movements in 2024; all tipping continued growth in defiance of a range of negative factors.

Last year, home prices nationally rose by more than five per cent, while in capital cities, the cost of real estate surged by about 10 per cent.

Historically low levels of dwelling supply clashed with red-hot demand from buyers, sparking frenzied competition across much of the country that pushed prices higher.

The year few expected

Westpac senior economist Matthew Hassan described the strong performance of virtually all major markets across the country as an “uncanny rally”.

“An unusual price-led upturn continued despite high and rising interest rates and relatively subdued turnover,” Mr Hassan said.

“While there has been a slight moderation in recent months, prices across the five main capital cities are set to finish up about 10 per cent for 2023. Brisbane, Perth and Adelaide have been the big performers.”

Whether buying, selling or renting, conditions across virtually all real estate markets were intense across 2024. Picture: NCA NewsWire / Jeremy Piper

It was a stark reversal of fortunes, with Commonwealth Bank head of economics Gareth Aird pointing out that soaring interest rates saw home prices slump by more than seven per cent in 2022.

“The housing market has displayed incredible resilience in the face of the Reserve Bank’s aggressive tightening cycle,” Mr Aird said.

Those rate rises and soaring prices saw borrowing capacities, or the amount would-be buyers can get from banks, collapse by a staggering 30 per cent.

Despite that, home values experienced a “solid upward trend” across 2023 and hit a new high.

“These are extraordinary times,” Mr Aird said.

“Australia’s population growth has surged over the past year and home building has not kept pace. As a result, vacancy rates have dropped to record lows in most capital cities and the rental market is hot. This has put upward pressure on home prices.

“Foreign buyers are also more active in the market. According to the latest NAB residential property survey the share of total market sales to foreign buyers in new housing markets increased for the fourth straight quarter.

“New sales to foreign buyers hit a 5.5-year high of 10.1 per cent in the third quarter of 2023.”

A variety of factors kept upward pressure on home prices throughout last year. Picture: NCA NewsWire / Jeremy Piper

Eliza Owen, head of research at CoreLogic, said those cheaper markets like Brisbane, Adelaide and Perth saw “very resilient conditions” and posted strong annual growth as a result.

“Housing activity rebounded through early 2023 as buyers took advantage of lower prices, however towards the end of 2023 affordability constraints have become more pressing, skewing demand towards the middle-to-lower end of the pricing spectrum,” she said.

Where prices will rise fastest

Research house PropTrack expects rising property prices to be a key feature of the year ahead, but some cities are set to see higher rises than others.

Despite worsening housing affordability and continued interest rate rises that have “significantly” eroded borrowing capacities, PropTrack director of economic research Cameron Kusher said two key factors are putting upward pressure on prices.

“We expect that a combination of continued strong demand and limited new housing construction will contribute to price gains, albeit at a slower pace than what we experienced last year,” Mr Kusher said.

Australia simply isn’t building enough new homes to satisfy demand. Picture: Getty

Taking into account current market momentum, predictions about housing supply, and the trajectory of interest rate rises, PropTrack forecasts an increase in home prices at a national level of between one per cent and four per cent.

Perth is likely to lead the charge at a capital city level, with projected home price growth of between five per cent and eight per cent, Mr Kusher said.

Adelaide is also set to see strong increases of between four and seven per cent, while Brisbane’s forecasted growth is three to six per cent.

Perth’s housing market is tipped to have a particularly strong year in 2024. Picture: NCA NewsWire / Sharon Smith

Despite soaring prices locking out more and more would-be buyers, Sydney’s outlook is still relatively strong, with PropTrack tipping growth of between two per cent and five per cent.

The Melbourne market is likely to experience more subdued activity of one to four per cent, Mr Kusher predicted.

Smaller capitals like Canberra, Hobart and Darwin will fare worse and post either slight declines or very modest gains over the coming year, he said.

What the Reserve Bank does with interest rates in coming months will be a key factor of housing market performance, Mr Kusher said.

“Interest rates are now at a 12-year high, and while they remained steady in December, there is a possibility of future increases, which could have an impact on buyer and seller sentiment.”

However, looming tax reform will see cashed up Aussies have even more money to spend – likely on property.

“Stage three tax cuts will commence in July, which will benefit higher income earners, and in turn could lead to increased demand for higher priced housing,” he said.

What the big banks expect

Economists at Australia’s big four banks all expect home prices to continue rising throughout the year ahead, although increases will be far from universal.

The Commonwealth Bank is forecasting home price growth nationally of five per cent across 2024, with Mr Aird saying there are early signs momentum is slowing.

“Prices growth nationally was at its softest monthly pace since January 2023 in November and auction clearance rates have recently softened,” he said.

Economists at each of the big four banks all expect home prices to continue rising this year – but not

At a national level, Westpac expects home prices to rise six per cent across the year, with the biggest increases seen in Perth (10 per cent), Brisbane (eight per cent), Sydney (six per cent), and Adelaide (six per cent).

“There are many risks to this outlook,” Mr Hassan cautioned.

“Markets may have defied rate rises in 2023 but could struggle to do so again if rates rise again in 2024. Our central case view also has a modest interest rate easing from the second half of 2024 – markets will lose more traction if this is not forthcoming either.”

Historically high population growth is also set to moderate this year, while “extremely stretched” levels of affordability “now looks to be biting”.

“A notable drop in turnover and a slowdown in price growth in Sydney [is] a sign of things that are likely to come elsewhere,” he said.

ANZ is also tipping a six per cent increase in home values at a national level, with a severe shortage of housing putting a floor beneath prices.

Adelaide Timbrell, the bank’s senior economist, said projected wage growth and the expectation of modest rate cuts towards the back-end of the year will see prices continue to rise.

“Strong absorption of new listings has kept total listings in the market suppressed and has intensified competition between buyers,” Ms Timbrell said.

“These factors have created a sharp shortage of housing, outweighing the negative impact of rates on prices.”

Price growth in Sydney is expected to slow this year. Picture: Getty

ANZ expects the strongest performing markets to be Brisbane and Perth, where population growth is expected to outpace supply more than in other cities. Melbourne is expected to report the slowest growth of the major capital cities.

Meanwhile, NAB is forecasting an increase in home prices across the capital cities of 5.4 per cent this year, with Brisbane leading the charge with a 6.5 per cent growth rate, followed by Adelaide (6.2 per cent) and Perth (6.2 per cent).

The bank expects prices to rise in Sydney by five per cent and in Melbourne by 5.5 per cent.

Types of homes set to boom in price

Nerida Conisbee is the chief economist at Australia’s largest real estate group, Ray White, and expects the luxury apartment market to have a particularly strong year.

“The types of apartments being built in Australia have changed dramatically over the past decade,” Ms Conisbee said.

“Whereas apartments in Australia were traditionally the place for younger people to live prior to buying a house, we are now seeing people choosing to live in apartments for longer or to downsize from a large home.”

Demand for much larger, higher quality and more prestige developments is on the rise and has seen the most expensive units sold for more than double that of a typical apartment.

“This year, fewer apartments being built, a growing population and a desire to live in some of Australia’s most sought-after inner urban areas will lead to a boom in luxury apartment demand.”

Demand is likely to remain elevated but some dwelling types will perform particularly well, experts say. Picture: Getty

Buyers are also increasingly demanding homes to be greener, sparked by rising environmental awareness as well as cost pressures.

“Having a greener home using solar and batteries makes it cheaper to run airconditioning, heaters and pool pumps,” Ms Conisbee said.

“Also, what makes homes green also generally makes them safer.

“We are heading into a particularly hot summer and having homes that are difficult to cool down makes them far more dangerous for the elderly and very young. Similarly, research into cooking with gas has shown that it can be bad for various respiratory and cardiovascular health issues.”

Much more subdued conditions

After a bumper year in 2023, CoreLogic expects a deterioration in several metrics to see a “more subdued” housing market in 2024.

“We’ve seen the pace of capital growth ease gradually from June and most notably through November,” Ms Owen said.

“Transaction volumes nationally declined an estimated 1.7 per cent over November as well, which is unusual given sales volumes typically increase from October to November.”

Demand remains high and supply is still flat, keeping pressure on prices. Picture NCA Newswire/ Gaye Gerard

That coincided with a decline in auction clearance rates – that is, the proportion of homes selling under the hammer each weekend – in capital cities since June.

“The RBA is forecasting a rise in the unemployment rate, we’re seeing a subdued pace of growth for GDP, slowing growth in disposable household income and the lowest household saving rate since the GFC at just 1.1 per cent,” she added.

“Combined with an expectation that interest rates could hold higher for longer, households are likely to see their budgets further stretched, and more households may fall into acute financial stress.”