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Property Market Update – June 2024 


We would like to provide you with an update on recent property market developments that may interest you.

 

Property Market update as of June 2024


Our Housing Market The latest forecast from Domain suggests a significant increase in Sydney house prices, with an expected rise of up to 8% over the next 12 months, setting a new median high of $1.76 million. This surge is attributed to strong population growth, increased borrowing capacity, and a shortage of supply. If the forecast holds, the average house price in Sydney will increase by $132,000 by the end of the next financial year.


Capital City Forecasts


  • Sydney: House prices are expected to rise by 8%, reaching a median of $1.76 million.

  • Perth: Anticipated to outperform all capitals with a 10% increase, bringing the median to $856,000.

  • Brisbane: Predicted to grow by up to 8%, nearing a $1 million median.

  • Adelaide: Expected to increase by 9%, reaching $984,000.

  • Melbourne: Forecasted to see a modest rise of 2%, with a median of $1.05 million.

  • Canberra: Predicted to increase by 4%.


Factors Driving Growth


Dr. Nicola Powell, Domain’s chief of research and economics, attributes the continued price increases across most cities to constrained supply, weak building approvals, and high construction costs, alongside strong migration. However, affordability issues and high interest rates are expected to temper price increases.


“Constrained supply is expected to be the predominant factor influencing property prices in the short term, leading to continued price increases across most cities during FY25,” Powell said. “At the same time, a growing population propped up by strong migration continues to be the wind in the sail of property price growth.”


Challenges Ahead


Despite the overall positive outlook, affordability constraints and high interest rates pose significant challenges. “Households are grappling with affordability and serviceability limits amid a cost-of-living crisis and high interest-rate headwinds,” Powell noted.


Unit Price Trends

Unit values are also expected to increase in the next 12 months:

  • Sydney: Up to 6%

  • Melbourne and Canberra: Up to 4%

  • Brisbane and Adelaide: Up to 6%

  • Perth: Up to 5%


 

 

 

 

 

 

Our Rental Market The latest CoreLogic Rental Market Report reveals a slowdown in the growth of Australian rental markets. In May, the national rental index rose by 0.7%, marking the lowest monthly increase since December of last year. This easing comes after a period of strong growth in the first quarter, which is typically seasonally higher for rental demand.


Key Takeaways


  • Pace of Growth: The pace of growth in rental markets has decelerated. The national rental index's 0.7% rise in May is the lowest monthly change in recent months.

  • Rental Yields: With rents rising faster than home values, gross rental yields have increased, reaching 3.56% across the combined capitals. This is the highest yield since August 2019.

  • Annual Growth: Nationally, rents have increased by 8.5% over the past 12 months, down from 8.9% a year ago and 9.3% two years ago. Despite the slowdown, this is still a significant rise compared to the average annual pace of 1.3% over the five years before COVID.

  • Sector Variations: The annual pace of rental growth has eased more in the unit sector than in houses.


Contributing Factors


  1. Net Migration: The slowdown in rental growth can be partly attributed to an easing in net migration since the first quarter of 2023.

  2. Rental Affordability: High rental prices have pressured affordability, causing changes in rental patterns.

  3. HomeBuilder Scheme: As homes built under the HomeBuilder scheme are completed, many homeowners are moving out of rental accommodations into their new homes.


Economic Context


Investor Yields: Higher yields are welcomed by investors, especially with variable interest rates for investor loans averaging 6.7%. However, despite the rise in rental income, many leveraged investors may still be experiencing cash flow losses due to the high cost of debt.


Market Outlook

  • Gross Rental Yields: The trend of rising gross rental yields continues, driven by rents increasing at a faster pace than property values. The combined capitals have seen the highest yields since August 2019.

  • Future Trends: The market may continue to see moderate growth in rents as affordability issues and migration trends play out. Additionally, the completion of new homes may further influence rental demand and supply dynamics.

 

 

 


 

Global Market


A Fresh Housing Boom?


The global housing market is experiencing a resurgence. In April, a house-price index for the world, excluding China, rose by over 3% year-on-year. American house prices have increased by 6.5% from last year, Australian prices by 5%, and Portuguese prices are soaring. Despite high interest rates, other countries are also seeing a strong market.


Recent Trends


  • Adjustments for Inflation: Prices have fallen by 20% in Canada, Germany, and New Zealand, and are well off their peaks in some US cities like San Francisco and Phoenix. In Boise, Idaho, prices have dropped by over a tenth.

  • Mortgage Strain: Higher interest rates and mortgage costs have increased financial stress. In Britain, the share of people struggling to make rent or mortgage payments rose from 24% in early 2022 to 41%.


Market Resilience


Despite the higher costs, nominal house prices have hardly fallen. Global house prices are down by 6% in real terms from their peak, aligning with pre-pandemic trends. The recent downturn has been the shortest ever, lasting just a few months.


Potential Risks


Some experts worry that high rates could lead to a crash. In Florida, listings with the term "motivated" suggest hurried sales, but overall, the US mortgage delinquency rate is at a record low of 1.7%. This is a stark contrast to the 11% delinquency rate during the global financial crisis of 2007-09.


International Outlook

  • New Zealand: Arrears are in line with pre-COVID norms.

  • Eurozone: Less distress observed, except in Germany.


Factors Supporting Housing Market


  1. Mortgage Systems: The US mortgage system, with long-term fixed rates, is credited for market resilience. Other countries are adopting similar systems. Fixed-rate mortgages protect homeowners from higher rates, reducing the likelihood of fire sales and giving them an incentive not to move.

  2. New Mortgage Applications: Remain strong across much of the world, even if they have fallen from pandemic highs.


Key Drivers of Price Growth


  1. Immigration: The rich world’s foreign-born population is rising by about 4% year-on-year, pushing up house prices and rents. In Australia, a net migration rate of 500,000 people is raising house prices by around 5%. Official figures might understate this shift due to undocumented immigration, especially in the US, further increasing housing demand.

  2. Sacrifices by Mortgage Holders: People are cutting back on other expenditures to manage higher mortgage costs. In Britain, one in five variable-rate-mortgage holders are making significant cuts in household spending. Others are using savings to service debt, with some countries extending mortgage terms to spread repayments.

  3. Economic Strength: Average wages have risen by about 15% since 2021 across the rich world, and unemployment remains near all-time lows. The increase in labour income outweighs higher interest costs, providing households with the means to manage higher mortgage payments.


Economic Adaptations

  • Longer Mortgage Terms: Countries like Canada are extending mortgage terms, with some loans now spanning over 30 years.

  • Interest Rate Income: Higher interest rates have also meant increased income for savers, partially offsetting higher mortgage payments. In the EU, savings interest income has risen significantly.


Future Outlook

Do not be surprised if house prices continue to rise. Some central banks have begun cutting interest rates as inflation declines, with the Federal Reserve expected to follow soon. Wage growth remains strong, and falling inflation will ease pressure on mortgage holders. Any increase in demand for housing will run up against constrained supply, further supporting price growth.




Advice Warnings & Disclaimers.

 

This information is intended to provide general information only and has been prepared without considering any particular person’s objectives, financial situation or needs. Any general advice contained within or given during this presentation (whether orally or in writing) does not consider your objectives, financial situation or needs. Nothing in this presentation is intended to be investment, financial advice or a recommendation to invest in a financial product. Before acting on such information, you should consider the appropriateness of the information having regard to your personal objectives, financial situation or needs. To the maximum extent permitted by law, we (Forward Path Advisory Pty Ltd), Joel Cleary & Rathakrishna Jeyabalasingam (Rads Je) disclaim all liability and responsibility for any direct or indirect loss or damage which may be suffered as a result of relying on anything in this podcast, including any forward-looking statements. Past performance is not an indication of future performance. In particular, you should obtain professional advice before acting on the information contained in this presentation. 


 

 

 

 

 

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