Property Market Forecast – Australia

This property market forecast provides a detailed analysis, including forecasts and strategic insights, to empower investors with the critical knowledge needed to make informed decisions about their next investment destination.

Now, we’ll dive deeper into these crucial factors

1) Economic and Market Dynamics

1.1) Interest Rate Influence and Affordability

The interplay between interest rates and housing affordability is a critical economic indicator, as it directly impacts the demand side of the equation.

If the Reserve Bank of Australia, as anticipated, decides to lower interest rates in 2024, the resulting increase in affordability will significantly boost demand for properties. 

According to Financial Review Australia, the anticipated rate cut is poised to improve housing affordability across all markets, with Sydney experiencing the most significant enhancement. 

This reduction will decrease the percentage of income required for mortgage payments in Sydney by 7.1 percentage points, bringing it down to 48.2%. Nationally, affordability is expected to improve by 5.5 percentage points to 40%. 

1.2) Population Growth & Market Activity

According to Oxford Economics and the Australian Bureau of Statistics, with net overseas migration reaching half a million people, coupled with increased activity from foreign buyers, downsizers, and cash buyers, demand has surpassed the usual dampening effect that interest rates would typically impose.

Population growth, access to cash, and improved affordability are fuelling the demand. On the other hand, the chronic stock shortage in Australia has become a serious issue, as it has caused property prices to skyrocket over the last three years.

Senior economist Maree Kilroy notes that a persistent shortage of new homes is expected to drive Australia’s next housing boom.

So, we’ve realised that high demand and a shortage of stock have significantly driven up property prices. But will this change soon?

Are enough new homes being built to alleviate the stock shortage?

To answer this question, let’s examine the current building and construction trends.

2) Building and Construction Trends

2.1) Supply Shortages Driving the Market

Australia faces a chronic shortage of housing, crucially underpinning future market growth.

Current projections from PropTrack reveal a significant shortfall of over 110,000 homes relative to the national target of building 1.2 million new homes by mid-2029.

This gap could widen to 170,000 homes by mid-next year, according to AMP’s chief economist Shane Oliver, amidst slow construction rates and strong demographic pressures.

2.2) Building Approvals: A Critical Indicator

For the property market to meet this high demand, an average of 240,000 building approvals per year is necessary over the next five years.

This translates to about 20,000 approvals per month. However, recent trends indicate a concerning decline to just 13,000 monthly approvals, highlighting a significant bottleneck that could hinder the necessary expansion of housing supply.

2.3) Labour Shortages in Construction

The shortage of skilled labour in the construction sector is another critical challenge.

According to BuildSkills Australia, to meet these ambitious building targets, the workforce needs to expand from 590,000 to 680,000 workers.

Despite ongoing calls for action, political challenges continue. The decision by Home Affairs Minister Clare O’Neil to exclude tradespeople from the highest-earning category of skilled migrants under Labor’s latest strategy underlines the persistent difficulties in matching policy with industry needs.

Therefore, this shortage is a substantial barrier to increasing construction output rapidly.

Lower than required building approvals, slow construction, labour shortages, and government policies clearly show that the stock shortage will not be resolved in the next few years.

Therefore, understanding the risks of buying house and land packages and determining whether it is better to build or buy a home is critical.

Why the Australian Property Market Is About to Boom?

In property investment, growth is driven by the balance of supply and demand.

As property demand outpaces supply, prices often increase, enhancing capital growth.

On the other hand, when properties flood the market, prices can plateau or even dip, curbing growth potential.

With the Reserve Bank of Australia likely to lower interest rates in 2024 and ongoing high levels of migration boosting demand, the market is set to see increased activity.

Interest rate cuts, population growth, and a sustained housing shortage suggest strong potential for capital growth, according to CoreLogic, Oxford Economics Australia, CBA, NAB, and many other research and financial institutions.

As the property market is poised to boom again, let’s take a look at the forecasted growth for each state for both houses and units.

Market Forecasts and Implications for Investors

House Market Trends

House prices in Perth are expected to exceed the $1 million mark within the next three years, while Sydney’s median price is forecasted to approach $2 million.

In Melbourne, Brisbane, and Canberra, median house prices are projected to reach $1.2 million, with Adelaide close behind at just under $1 million.

Hobart’s prices will rise to $855,700, and Darwin’s to $695,600.

On a national scale, house prices are set to increase to $1.34 million.

Projected House Price Growth By Capital

Darwin’s housing market is on track for robust growth over the next three years, with an expected increase of 24% in house prices, making it the second-strongest performer. This growth is supported by significant government investment in defence, which is anticipated to continue bolstering employment.

Melbourne is projected to see a 21% increase in house prices over the next three years, surpassing Sydney’s anticipated 18% growth. This surge in Melbourne is driven by a rebound in migration, which is set to stimulate housing demand. If you would like to explore your investment opportunities, contact a Melbourne buyer’s agent.

House prices in Brisbane and Canberra are expected to rise by 19% over the same period. Adelaide’s market is predicted to grow by 16%, while Hobart’s will see a 13% increase.

Perth is poised to spearhead this upward trend, with house prices anticipated to rise by 30% by the end of the fiscal year 2027, driven by a supply shortage, robust economic conditions, and a growing population.

This market experienced a prolonged downturn following the mining boom, leading to underperformance. It is now poised for a resurgence to align with other markets. Additionally, it exhibits more pronounced fluctuations in its price cycles compared to other markets, often resulting in significant upswings and downswings.

Population growth is running above 3 per cent per annum, with migration flows both interstate and overseas being pulled to Perth by a strong labour market and relatively good housing affordability, setting a solid base for continued double-digit price growth near term

Nationally, the average increase in house prices is forecasted at 20 percent.

Units and Apartments Market Trends

According to CoreLogic, unit values are now increasing at a faster rate than houses in over half of the suburbs nationwide, as an increasing number of buyers capitalise on the sector’s lower price points following years of slow growth, according to data from CoreLogic.

This trend is driven by affordability pressures, migration patterns, and low rates of apartment completions.

In Perth, unit values are predicted to lead the growth, with a projected increase of 30% over the next three years. This is expected to be followed by a 26% increase in Darwin and a 23% rise in Brisbane.

In Sydney, unit prices are anticipated to rise by 22%, while Melbourne and Canberra are expected to see a 20% increase.

Adelaide’s unit values are projected to grow by 18% and Hobart by 16%.

Across the nation, unit values are expected to increase by 21%.

So where Should You invest Based on This Property Market Forecast?

It is essential for investors to understand that there are markets within markets. For instance, even if forecasts suggest that the Brisbane market will grow by 19%, this doesn’t mean that all suburbs will see the same rate of growth.

Some areas might experience a 10% increase, while others could see growth as high as 25%.

This highlights the importance of not basing investment decisions solely on general market predictions, but rather conducting thorough analysis of specific suburbs within the market.

Neglecting this step can result in significant financial losses and missed opportunities for maximizing returns.

To illustrate this point more clearly, consider the following example:

Imagine buying a property for $700,000. In ten years, if that property grew at Australia’s average 7% rate, it would be worth $1,377,006. 

However, with the right guidance, choosing a property in a suburb with an additional 2% growth could increase its value to approximately $1,657,155. 

That’s a substantial difference of $280,149 from just one property investment decision! 

That’s more than just a number. It’s a whole different lifestyle. So, in property, knowledge isn’t just power; it’s the key to unlocking your dream life. 

Consequently, choosing the wrong suburb or property isn’t just a financial misstep—it could jeopardize the future you and your family deserve.

Key To Success

Property investment is seen as one of the fastest ways to grow your wealth in Australia and unfortunately, it can be an easy one to get wrong.

A poor choice, a single mistake, or listening to poor advice could cost you hundreds of thousands of dollars.To build a sustainable and profitable property portfolio, you need more than just ambition. You need a team.

Your mortgage broker finds you a competitive race to reduce your investment costs. Your property adviser identifies promising opportunities for wise investing.

Your accountant reduces your tax. Your solicitor protects you against risk and your financial advisor ensures every decision supports your overall wealth strategy.

Without the right team, you might miss out on great deals or end up with costly mistake.

Build Your Team & Embrace Expertise

Picture yourself stuck with expensive loans paying more taxes than needed. Or even worse, investing in properties that don’t have good returns.

But with the right team, investing becomes a team effort rather than a solo challenge. And every expert on your team doesn’t just add their skills, they significantly boost your chances of success.

So if you’re ready to build a future where your investment flourish and your wealth grows, remember to go far in property investing, go together, build your team, embrace expertise and watch your portfolio thrives.

You can learn more about our property investing services here.

Disclaimer:

This property market forecast is for general information only. You should consult your accountant, financial adviser, and legal team before making any decisions. In this property market forecast, we have not taken the financial situation of the reader into consideration. This property market research is not investment advice.