House prices will continue to grow in 2024, economists forecast

More economists have suggested that house prices will continue to rise this year, despite growing affordability constraints and serviceability hurdles.

A new report from Oxford Economics Australia has outlined that property prices will rise by 2.7 per cent in the combined capital cities over the remainder of the 2024 financial year.

The growth forecast came after the property market grew faster than expected in FY23 (when property prices grew by 8.1 per cent, according to Oxford Economics).

Indeed, CoreLogic has previously reported that capital cities recorded growth of 9.3 per cent over the calendar year 2023, with house prices now higher than the previous peak of April 2022 (Australia’s median home price hit an estimated new record of $939,000 in December 2023).

According to the economic forecasters, despite softening auction clearance rates and deteriorating affordability, house prices will rise by around 2.7 per cent nationally over this financial year.

This will largely be due to the continuing undersupply in housing, with the economists estimating that there will be a deficiency of more than 97,000 homes this year. This followed on from the deficiency of over 100,000 dwellings last year and a continued softening in new dwelling commencements.

House price growth will then pick up speed in FY25 and FY26, according to the analysts, with the median all-dwelling price forecast to grow by an average of 6.3 per cent per annum over the two years to FY26.

Which capitals will fare the best?

Perth, in particular, is predicted to have a strong performance in house prices this financial year. The Western Australian capital – which bucked the 2022 downturn – approached double-digit growth in 2023, but still boasts the lowest median house price of all the major capital cities. Investors are particularly drawn to the affordability advantage offered there, alongside the promising gains.

Oxford predicts 10 per cent price growth for the western city in FY24, though the region’s growth will slow slightly as others pick up, with that figure expected to fall to 9.8 per cent in FY25. This will be buoyed by sustained population growth and lower stock.

By midway through FY25, however, it is expected that Perth will no longer bear the title of the cheapest capital in which to buy a home, passing the mantle to Adelaide.

Sydney’s property market is experiencing a slowdown in growth, having risen by 10.3 per cent in 2023. The economists think house prices will rise by 3.3 per cent and unit prices by 5.2 per cent in FY24. This deceleration in growth has been attributed to an additional interest rate lift and rising listing volumes; however, a rebound is expected from late 2024 onwards.

Melbourne faces a combination of easing conditions and policy headwinds, with a flat median all-dwelling price expected in FY24, but a rebound in housing demand is anticipated from FY25, the economists suggested.

Meanwhile, Brisbane’s market is expected to continue to be strong, benefiting from affordability, migration and the 2032 Olympics, with a 5.9 per cent increase in median house price forecast for FY24.

Adelaide’s resilient market will be driven by population growth, expat returnees, and affordability, with a forecast 5.8 per cent average annual increase in median all-dwelling price to FY26.

Canberra could see a price slide, Oxford Economics said, but its affordability is supported by public sector wages; unit prices are expected to outpace houses.

Hobart will reportedly see declines in both median house and unit prices in FY24 (before growing again in FY25), while Darwin, the worst-performing market in FY23, will only see modest growth in FY24 before significant increases in FY25 and FY26, driven by government investment.

Maree Kilroy, the report’s author and senior economist at Oxford Economics Australia, commented: “Capital city performances have diverged in recent months. Total listings have risen in Melbourne and Sydney, a trend we expect will continue in coming quarters, acting to slow price growth.

“Tailwinds will serve to propel prices in Perth, Brisbane, and Adelaide. Low levels of advertised listings and affordability in pockets will prop up prices in these cities next year.”

One element that will unite all capital markets is the continuing tug of war between affordability constraints and a shortage of supply, with the latter expected to exert its strength as soon as interest rates begin to drop, increasing competition among buyers waiting in the wings.

“Interest rate cuts from late 2024 should boost credit availability, accelerating broad price growth once again,” Ms Kilroy commented.

Other forecasters align with Oxford Economics’ view. CBA Economics is predicting a 5 per cent lift in home prices by the close of 2024, for example.

In a recent economic update, the major banks’ economics team said “constrained supply and robust underlying demand” would help support price growth this year, with interest rate cuts softening the “handbrake” caused by affordability constraints in the first part of this year.

They continued: “As we look into 2024, we expect home prices to end the year higher. Although we anticipate slower growth, even small dips in Melbourne and Sydney, in the early stages of the year,” they said that lower interest rates from September would lead to “a sharper lift in monthly prices in late 2024.

“We expect considerable divergence between capital cities over the course of the year. We expect a distinct period of moderation, including small monthly falls in Sydney and Melbourne over the first half or so of 2024”. The CBA team suggested Sydney prices would rise by 3 per cent this year and 2 per cent in Melbourne.”

While the other major capital cities of Brisbane, Perth, and Adelaide would all likely experience slower monthly growth than in 2023, CBA said they would grow by around 8 or 9 per cent this year.

Senior mortgage broker at Home Loan Experts, Johnathan Preston, echoed the sentiment from CBA and said he expects the Perth and Brisbane property markets to continue to do well.

"Conversely, Adelaide should slow down, with Melbourne and Sydney both likely to fall," Mr Preston added.

"However, one contrasting observation is that We've received many new inquiries over the last few days after months of quietness.

"This could signal an improvement in sentiment or the effect of New Year's resolutions taking shape. Overall, the outlook isn't very positive, except for Perth and Brisbane, where the prospects seem brighter."

[Related: Property price rebound likely to continue: PropTrack]