Despite central bank comments hinting at the possibility of an interest rate hike before the end of the year, property analysts are still forecasting a 5.0% rise in Australian home prices in 2024. This projection remains unchanged from the previous poll conducted three months ago. Following a 25% surge during the pandemic, average house prices experienced a 9% decline from their peak before recovering almost entirely last year, even with the Reserve Bank of Australia raising the cash rate to a 12-year high of 4.35%. The central bank is expected to maintain this rate well into the second half of the year.
Driving Factors Behind Price Increase
The high cost of home prices in Australia continues to be a concern for many first-time buyers. Factors such as a low jobless rate, high wage growth, and a spike in immigration are expected to drive prices up in the upcoming year, albeit at a slightly slower pace compared to previous years. Since the 2008 financial crisis, home prices have nearly doubled, reflecting the ongoing trend of rising housing costs in the country.
According to a recent survey of property analysts, the average home price is projected to increase by 5.0% both in 2024 and 2025. Analysts are cautious about the housing market cooling down after a strong performance in 2023, where capital cities saw a 9.1% price growth. The prevailing interest rate of 4.35% is expected to act as a limiting factor on housing price growth in the current year. However, factors such as tax cuts, rate cuts, population growth, and a backlog of building homes are likely to contribute to the overall growth in housing prices.
Affordability and Homeownership
Affordability for first-time homebuyers is a major concern, with six out of ten analysts predicting a worsening situation in the coming year. The increasing unaffordability of housing is leading to a decline in homeownership rates, making housing increasingly a luxury good. The gap between demand and supply of affordable homes is expected to widen over the next 2-3 years, which could further exacerbate the affordability crisis in the housing market.
Analysts are divided on the proportion of homeownership to renters, with five out of eight respondents predicting a decrease in homeownership over the next year. The narrowing pool of potential buyers is likely to lead to an increase in the number of rentals as more individuals are priced out of the housing market. The challenges of housing affordability and the widening gap between housing prices and income levels are key factors contributing to the shifting dynamics between renters and homeowners in the Australian market.
While property analysts are optimistic about the growth in Australian home prices in 2024, the ongoing concerns about affordability, homeownership rates, and supply-demand dynamics indicate the need for careful monitoring of the market to ensure sustainable growth and access to housing for all segments of the population.