By Devayani Sathyan
BENGALURU, Feb 28 (Reuters) – Property analysts are unflinching in their prediction of a 5.0% upsurge in Australian home prices for 2024, as revealed by a recent Reuters poll. This forecast remains steady despite suggestions from the central bank in the intervening three-month period that a potential interest rate hike could loom before the year ends.
Having weathered a 25% surge during the pandemic, average house prices experienced a 9% decline from their peak. However, they managed to recoup most of the losses last year, even in light of the Reserve Bank of Australia raising the cash rate to a 12-year pinnacle of 4.35%. It is widely expected that the bank will maintain this rate well into the latter half of this year.
Considered beyond reach for many first-time purchasers, the soaring average home price persists as a hurdle. Factors such as a low jobless rate, robust wage growth, and an escalation in immigration are bound to continue propelling prices upward, albeit at a slower pace compared to recent years.
Reflecting on trends since the aftermath of the 2008 financial crisis, it emerges that home prices in Australia have nearly doubled.
The latest data from a Reuters survey of 14 property analysts spanning Feb. 16-28 projects a 5.0% increase in average home prices for this year. This aligns with the unchanged prediction from a December poll. Moreover, there is an anticipation for a 5.0% price escalation in 2025, contrasting with the 3.9% projection in the previous survey.
“The housing market in Australia seems to be cooling. There was a very strong year in 2023 with 9.1% price growth in capital cities, but we don’t expect that to be repeated. The interest rate staying at 4.35% for most of the year … will put a limit on housing price growth in 2024,” remarked ANZ senior economist Adelaide Timbrell.
“Housing prices will still grow because people will have more borrowing capacity through the year due to tax cuts and rate cuts. And there’s still strong population growth and a backlog of building homes that needs to be filled.”
Effective July 1, a revision will see high-income earners shouldering a heavier tax burden, juxtaposed against low-income households which will benefit from reduced tax liabilities as they grapple with an escalating cost of living.
The rock-bottom interest rates observed during the pandemic coupled with a dearth in housing supply served to fuel an already pricey housing market, compelling prospective first-time buyers to concede to the rental market’s demands.
On the front of affordability for first-time homebuyers in the upcoming year, six out of 10 analysts foresee a deteriorating scenario, while the remaining four hold a positive outlook where affordability is concerned.
“Housing has regrettably transformed into a luxury commodity, with household affordability plummeting to historically low levels. This downward pressure is likely to impact homeownership rates,” noted Barrenjoey senior economist Johnathan McMenamin.
“Pre-pandemic, the scenario demanded individuals to earn above the median income to enter the housing scene. However, the threshold has shifted further up the income spectrum. The cohort of potential buyers has shrunk in this current cycle, possibly leading to an expansion in the rental sector.”
Among eight respondents, five anticipate a decrease in the ratio of home ownership to renting over the next year, while three foresee an increase.
Evaluating the growing chasm between the demand and supply of affordable housing over the next 2-3 years, analysts who foresee a widening outnumber those who predict a status quo or a modest narrowing by a ratio of two to one.
“Each time housing prices outpace income growth, the segment of affordable homes diminishes. This trend is bound to persist unless there is a substantial surge in social housing initiatives,” added ANZ’s Timbrell.
(For additional housing market insights from Reuters’ quarterly polls, click here.)
(Reporting by Devayani Sathyan; Polling by Veronica Khongwir; Editing by Ross Finley, Jonathan Cable and Christopher Cushing)
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