Australian Property Market Forecast: What to Expect In 2024?

By Ershad Ullah December 10, 2023 | Tags: Property Investment

In 2023, The Australian property market has demonstrated a significant rebound since 2022. The latest report from CoreLogic generates a wave of optimism among homeowners and investors as the national Home Value Index (HVI) has risen by 8.1%. This increase is not just a passing trend but marks a consistent rise in housing values across the majority of the country’s regions.

The rental market, boosted by increased migration post-COVID-19, suggests a continued upward trend in property values into 2024. The return of international interest in Australian real estate also points towards a tightening market.

For potential buyers in 2024, considering the long-term trends, the robust rental market, and individual financial circumstances is crucial. The decision to buy should be informed by a thorough understanding of the market dynamics, including interest rates and global demand.

In this article, we will explore the factors influencing the Australian property market in 2024.

Australian Property Market Forecast: Housing market overview in 2023

To predict the housing market trends for 2024, it’s essential to analyse the developments and patterns observed in the housing market during 2023. According to CoreLogic research news, The Australian housing market has recently shown signs of a slowdown, yet it still achieved a new record high in its national Home Value Index (HVI) in November [1]. After a significant drop of 7.5% from April 2022 to January 2023, the market rebounded with an 8.3% increase over the past ten months, illustrating a distinct ‘V’ shaped recovery.

Current trends, as per CoreLogic’s 2023 data, showcase that home values in some capital cities have surged by over 10% since the start of the year. Sydney leads with a 10.9% increase, followed closely by Perth at 10.8% and Brisbane at 10.2%. In comparison, Melbourne’s property values grew by a more modest 4% during the same timeframe.

Despite these general uptrends, Sydney and Melbourne have not yet fully rebounded to their peak values from early 2022, with Sydney still 2.2% below and Melbourne 3.7% below their respective highs. Conversely, Brisbane’s property market has hit new heights, overcoming an 8.9% decline to emerge stronger.

The median house value in Sydney currently stands at $1,396,888, and units are at $832,222. Melbourne’s median values are at $937,736 for houses and $615,022 for units [2].

However, this overall trend masks regional variations. Notably, Melbourne and Hobart experienced a modest decrease in housing values by 0.1%, and Darwin saw a 0.3% decline. Sydney’s housing market growth also decelerated substantially, with a mere 0.3% increase, the smallest during the recovery phase. By the end of November, Sydney’s home values showed signs of potentially stabilising or even decreasing in December.

In contrast, Perth’s housing market was more dynamic, witnessing a significant 1.9% rise in November, the largest monthly gain since March 2021. Brisbane and Adelaide also maintained a robust growth pace, with increases of 1.3% and 1.2%, respectively. According to CoreLogic Research Director Tim Lawless, this growth in Perth, Brisbane, and Adelaide is driven by a low supply of advertised properties and sustained above-average purchasing activity, which continues to push housing values upward despite weaker conditions in other regions.

Australian Property Market Forecast — Unemployment rate is a key indicator for policy maker to make decision on interest rate

Will Interest Rates Increase or Decrease in 2024?

As we look ahead to 2024, many Australians are wondering whether their loan interest rates will go up or down. In a recent update, the Reserve Bank of Australia (RBA) hinted that rates might rise slightly early in the year. This comes after an increase in November 2023 took rates up to 4.35% and kept it as it is in December 2023.

The reason behind this expected rise is mainly due to inflation—the cost of goods and services—which has been tougher to manage than expected. The RBA has been trying to keep inflation at a comfortable level, but it’s been a bit like trying to tame a balloon in the wind. They’ve said it might take a bit more time to get inflation to settle down to where they want it to be.

So, if controlling inflation is like keeping that balloon steady, raising interest rates is one way the RBA can pull it back down to earth. Higher interest rates generally mean people spend less, which can help cool off inflation.

Unemployment rate is also another key indicator for policy maker to make decision on interest rate. According to RBA, for inflation to go down the unemployment rate need to rise to 4.5%. When more people are employed, consumer spending typically increases, which can drive up prices and inflation. If the unemployment rate gets to 4.5%, that will mean an extra 140,000 unemployed [3].

Will Property Prices fall in 2024?

Understanding what might happen to house prices in 2024 is quite tricky. It’s like trying to solve a puzzle with lots of different pieces. As you have seen in the above 2023 property market overview, house prices in some parts of Australia are rising significantly, while in other areas, they remain relatively stable or are even declining. Moreover, pricing tends to fluctuate on a monthly basis, influenced by the supply and demand dynamics in the housing market. To make informed predictions about what might occur next year, it’s crucial to consider several key factors.

First, there’s interest rates – that’s the cost of borrowing money. If interest rates go up, it usually costs more to get a home loan, and this can make people less keen to buy houses, which might lower house prices.

Secondly, the influence of overseas demand on the housing market can be significant. International buyers, attracted by various factors such as economic stability, educational opportunities, or lifestyle preferences, can drive up demand in certain property markets. This increased demand can lead to a surge in house prices, especially in sought-after areas or cities known for their lucrative investment opportunities. Additionally, foreign investment can stimulate the development of new properties, potentially altering the market dynamics by increasing the supply of high-end or luxury housing.

Finally, we have to think about how the population is changing – this is what we mean by demographic shifts. For example, if more people move to a city, they’ll need places to live, and this can push house prices up. But if lots of people are moving away from a city, there might be too many houses and not enough people wanting to buy them, which can make prices go down.

Will Rental Income Influence Property Prices in 2024?

The potential influence of rental income on property prices in 2024 is strengthened by the robust performance of the rental market in 2023. With a modest yet significant increase of 0.6% in rent values as of July 2023, the market signals a solid demand for rental properties. This trend is further amplified by the notable surge in migration, especially in the post-pandemic era. The period of 2021-22 witnessed an extraordinary 171% rise in migrant numbers to 395,000, primarily due to the easing of COVID-19 travel restrictions. While these figures are yet to reach the levels seen before the pandemic, their impact on the property market is unmistakable.

Traditionally, a rise in migration has been a key driver in escalating the demand for residential properties, thereby elevating both purchase prices and rental rates, especially in urban areas that are typically the first choice for new arrivals.

it’s crucial to thoroughly analyse a range of factors to predict the potential direction of house price

Is It the Right Time to Buy a property in 2024?

Deciding whether it is the right time to buy property in AustraliaBuying a property using a SMSF requires an understanding of the current market dynamics. As of now, the Australian property market is characterised by steadily rising property values and a robust rental market. This growth is fuelled by a combination of factors, including the recent surge in migration and the recovering economy post-COVID-19. While the Reserve Bank of Australia’s (RBA) interest rate hikes may cause potential buyers to pause, these increases are also reflective of a supply, demand, migration and economic growth.

The latest PropTrack report sheds light on a fascinating trend: interest in Australian real estate from overseas buyers and renters is on a significant upswing [4]. Since their last Overseas Search Report in July 2023, there’s been a notable uptick in activity, with searches for properties to buy jumping by 11.5% and rental searches climbing by 7.8% in just three months. These figures don’t just represent a recovery; they’re now outpacing the pre-pandemic interest levels.

With migration figures rebounding to their former highs, this surge in international attention is poised to have a substantial impact on the property market as we head into 2024. This increase in demand from overseas could signal a tightening market with potentially higher property values and rents, making it an important factor for both investors and homebuyers to consider.

As we look forward to 2024, it’s crucial to thoroughly analyse a range of factors to predict the potential direction of house prices in your area of interest. This involves a detailed comparison with housing market data from the past 10 to 20 years. Such a historical perspective can offer valuable insights into where house prices might be headed in the longer term, say by 2034 or 2044. When approaching this as a long-term investment, it’s important to recognize that while prices may fluctuate downwards in the short term, the key consideration is their trajectory over the next decade or two.

The core question to ponder is: ‘Will the value of the house increase over a 10- or 20-year period?’ This perspective shifts the focus from immediate market fluctuations to long-term growth. Additionally, reflect on the primary purpose of your purchase. Are you buying a home to live in, or is it an investment? If it’s a home and within your budget, the decision may weigh more on personal and familial needs rather than market timing. On the other hand, if you’re investing and have the flexibility, you might consider waiting to see if prices drop further. However, remember that trying to time the market perfectly is often challenging and involves a certain degree of risk and uncertainty.

Things You should Consider before Buying or Investing in 2024

Clear Plan for Buying/Investing – Property is often one of the biggest assets people acquire in their lifetime. However, it’s common to see individuals purchasing properties without a clear plan. Having a well-defined strategy is crucial; it guides your decisions regarding the type of property you’re seeking, its location, potential for high rental yield, and capital appreciation. For instance, if your aim is to buy a home for personal use, you should typically look for locations with reliable public transport, good schools for the children, and a pleasant neighbourhood. Conversely, if your intention is to invest in short-term rentals or Airbnb, selecting a property in a high-demand area is crucial to maximise your investment return.

Finance, Budgeting, and Investment Goals: It’s crucial to thoroughly assess your budget and secure financing as needed. This assessment should include not just the upfront costs, such as the deposit, stamp duty, and legal fees, but also ongoing expenses like mortgage repayments, property maintenance, council rates, and insurance.

As of December 2023, the current cash rate stands at 4.35%, indicating that the average retail interest rate for a home loan in 2024 could range between 5.4% and 6.4%. It’s advisable to consult with your mortgage broker about the advantages and disadvantages of an interest-only loan compared to a principal and interest (P&I) loan. Furthermore, discuss with your broker whether fixing the interest rate for one or more years is a suitable strategy for you. Ultimately, your investment goals will play a pivotal role in shaping your finance structure.

Income & Capital Gain Tax: When buying property as an investment, it’s critical to consult with your accountant to fully grasp the holding costs, which include various expenses and mortgage repayments. Your accountant can help you understand the implications of negative gearing — where your rental income is less than your expenses, leading to a tax-deductible loss — and how it affects your cash flow. Additionally, it’s important to strategize with your accountant on minimizing potential capital gains tax, especially if you plan to rent out your principal place of residence (PPOR) in the future.

One key aspect to explore is the six-year exemption rule, which can be a valuable tool in avoiding or reducing capital gains tax if you decide to rent out your primary residence. Under this rule, you may be exempt from capital gains tax on your home for up to six years if you rent it out, provided it remains your main residence for tax purposes. Engaging in thorough research and discussions around these tax considerations is essential to ensure that your property investment aligns with your long-term financial goals and maximizes your tax benefits. Such careful planning can significantly influence the profitability of your investment in the long run.

when purchasing a property for investment purposes, it’s crucial to choose the right ownership structure

Investment Structure – When purchasing a property for investment purposes in 2024, it’s crucial to choose the right ownership structure. Options include joint tenancy, tenancy in common, company ownership, a trust, or a Self-Managed Super Fund (SMSF). Each structure offers unique benefits and drawbacks, particularly in terms of tax planning, asset protection, and estate planning.

Joint Tenants: This structure is often used by couples and means each owner has equal rights to the property. Upon the death of one partner, the property automatically transfers to the surviving partner, which can simplify estate planning.
Tenants in Common: Allows for unequal ownership shares and the portion owned by a deceased partner can be bequeathed to someone other than the co-owners.
Company: Holding a property in a company can offer tax advantages and limited liability but may have higher costs and compliance requirements.
Trust: A Trust provides asset protection and can offer tax benefits, particularly for distributing income to beneficiaries in lower tax brackets.
SMSF: Investing through your SMSF can be tax-efficient and offer a way to build retirement savings, but it comes with strict compliance rules and limitations.

It’s important to weigh these options against your personal financial situation, investment goals, and future plans.

First homeowners Grant – If you are purchasing your first home be aware of all the rules and regulation of the First Homeowners Grant (FHOG). Every state has their own rules and regulations. Check out the eligibility and our First Homeowners Grant flow chart for the amount.

First or Family Home Guarantee – To be eligible for Australia’s Home Guarantee Scheme, including the First Home Guarantee, Family Home Guarantee, and Regional First Home Buyer Guarantee, you must check your eligibility on the Housing Australia website [5]. Generally, Australian citizens and permanent residents over 18 who haven’t owned residential property in the past 10 years can apply (except for Family Home Guarantee applicants who may have previously owned a home). Income limits are set at $125,000 for singles and $200,000 for couples.

The First Home and Regional First Home Buyer Guarantees allow various co-borrowers, whereas the Family Home Guarantee is specifically for single parents with dependents. The scheme applies only to owner-occupied home loans on a principal and interest basis, excluding investment and Interest Only loans. Deposit requirements range from 5% to 20% for the First Home and Regional Guarantees, and 2% to 20% for the Family Home Guarantee.

In conclusion, the Australian property market forecast for 2024 presents a complex but generally optimistic picture. With the national Home Value Index demonstrating significant growth in 2023 and the continued strength in the rental market, the momentum is leaning towards a continued rise in property values. While the Reserve Bank of Australia’s potential interest rate hikes in 2024 could introduce some uncertainty, the overall impact may be mitigated by other economic factors such as increased migration, a robust rental market, and international interest in Australian real estate.

Navigating the complexities of the property market, especially in the face of potential interest rate hikes and varying regional trends, requires strategic planning and expert guidance. We strongly encourage our readers to reach out to us for personalised assistance in crafting a comprehensive investment and tax strategy tailored to their specific needs. Whether you’re a first-time homebuyer, an experienced investor, or somewhere in between, Investax Group’s expertise in real estate investment, finance, and tax planning can be an invaluable asset in maximising your returns and minimising risks.

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Glossary Items

Tightening Market: Because more people want to buy or rent properties, but the number of available properties isn’t increasing much, it’s becoming harder to find available properties. This is what is meant by a “tightening” market – the demand is going up, but the supply isn’t keeping up.
Unemployment Rate – The unemployment rate measures the percentage of the labour force that is without a job but actively seeking employment. It’s an important indicator of the economy’s health, reflecting how many people are out of work in relation to those who are employed or looking for jobs. A high unemployment rate suggests economic struggles and job scarcity, while a low rate indicates a healthier job market and economy.
Median House Price – Median property value indicates the middle value in a list of property prices, where half of the properties are valued higher and half lower. It’s a key metric for assessing the real estate market in an area, offering a clearer view than averages that can be distorted by extreme values. This figure is crucial for understanding property market trends and affordability.
Negative Gearing – Negative gearing occurs when the costs of owning a property, including interest on the loan, property maintenance, and other expenses, exceed the income it generates (such as rent). Essentially, you are making a loss on the property.