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OtherLindsay SaundersMon 20 Nov 23

Sydney, Melbourne House Prices Tipped to Fall in 2024

Sydney and Melbourne housing prices will fall in what a national researcher has tipped will be a mixed 2024 national housing market.

According to forecasts by SQM Research in its annual update, Christopher’s Housing Boom and Bust Report 2024, the base case forecast is for average national home prices to change between -1 per cent to 3 cent.

Perth and Brisbane are the only cities expected to record price rises, driven by a tailwind of a recovering Chinese economy, which is anticipated to have strong demand for base commodities such as iron ore.  

However, for much of the rest of Australia, the sharp deterioration of housing affordability, driven by ongoing interest rate rises that are now, in SQM’s opinion, at restrictive levels, plus an anticipated slower economy, will mean a modest to moderate correction in homes prices in Sydney, Melbourne, Canberra and Hobart.

Adelaide and Darwin are anticipated to remain steady or record a minor rise/correction.  

The rise in interest rates during 2022 and 2023, and possibly into 2024 will start to bite homeowners and would-be home buyers alike.

SQM Research expects a rise in distressed selling activity during next year and only the most cashed up willing to enter the market.

Sydney’s housing market is expected to record a moderate fall in homes prices of between 4 per cent to 0 per cent.

It is expected Sydney’s middle to outer rings for free-standing houses will record a greater correction.

Sydney units are expected to outperform, and Sydney’s inner ring is still expected to record price rises as top end property remains in demand from foreign investors.

This year there has been a significant deterioration in housing affordability for Sydney.

Typical mortgage repayments to household incomes have reached generational new highs and based on the current Sydney median home price ($1,100,000) have put housing out of reach for the majority of Sydney working adults.

Melbourne is also forecast to enter a modest correction with prices tipped to fall by up to 3 per cent.

Like Sydney, Melbourne’s top end of the market is still expected to record price rises and units too are also expected to outperform. 

null
▲ Like Sydney, the Victorian capital is also forecast to enter a modest correction in 2024.

Canberra is forecasted to record the largest falls out of all cities with price falls anticipated of between 4 per cent to 8 per cent.

The combination of slower anticipated federal government spending plus an expected strong rise in home completions—one of the very few cities recording accelerated supply.

The forecasts were based on two key contingencies, SQM said:

  • The rate of net short term and longer-term migration is expected to peak next year and then ease so that total population growth for 2024 falls back to circa 460,000 people.

  •  The rate of inflation is expected to continue to ease to back to between 3 per cent to 4 per cent  by the end of 2024. 

If Australia’s migration rates fail to slow as anticipated, this would likely mean SQM’s base case forecasts of a mild correction would not materialise, the report daid.

On the other hand, housing price falls could be more acute if inflation were to accelerate to the point of forcing the Reserve Bank of Australia to lift the cash rate beyond 5 per cent.

To this end, SQM has built out a scenario based on a second energy crisis, driven by current events in the Middle East.

Such a scenario would force the RBA to lift interest rates more aggressively during 2024 and very likely trigger a sharp recession for Australia. 

null
▲ There is no good news for renters next year, according to SQM.

Rent rises tipped to continue


Asking rents around the nation are expected to rise between 7 per cent to 10 per cent with the Perth tipped to record the largest increase of 12 per cent to 15 per cent.

While SQM expects an easing in the population growth to 460,000 people, it also expects a sharp decline in home completions over 2024 to 153,000 homes.

Current building approval numbers plus homes under current construction as published by the Australian Bureau of Statistics strongly suggest the nation will have the lowest completion rate since 2012. 

This ongoing imbalance between demand and supply will continue to put upward pressure on rents around the country. 

 “Another year of anticipated strong population expansion (albeit slower than 2023), plus an ongoing shortage of new homes, will limit the fall in housing prices to single percentage digits and the price falls should just be limited to mainly Sydney, Melbourne, Canberra and Hobart,” SQM Research managing director Louis Christopher said.

“Nevertheless, with expected slowing employment growth and the corresponding rise in unemployment, tipped to be towards 5 per cent by the year end 2024, this negative will more than offset another year of strong migration. 

“The interests rate rises of 2022, 2023 and possibly 2024 will finally start to bite homeowners and would-be homebuyers alike. Distressed selling activity is expected to jump, especially in NSW where we are already starting to see a new trend upwards in that data set. 

“These are the key assumptions behind our base case scenario. If I am wrong and the housing market has another strong year, it will be because employment growth has continued to be firm and/or migration has once again grown more quickly than expected and homeowners once again have managed to withstand the higher lending rate environment. 

“Perth and Brisbane are still very likely to record price rises based on super tight rental conditions, a better-than-expected global commodities market and minimal exposure to the financial services sector (where we believe there maybe be significant job losses).”

ResidentialAustraliaReal EstatePolicyPolicy
AUTHOR
Lindsay Saunders
The Urban Developer - News Editor
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Article originally posted at: https://theurbandeveloper.com/articles/sqm-boom-and-bust-report-2024