Australian real estate is set for a double-dip downturn, according to a leading analyst, as interest rates finally weigh on property prices and for-sale listings surge.
Key points:
- SQM Research is forecasting flat to falling home prices for most cities except Perth and Brisbane in 2024
- High interest rates, rising unemployment and an increase in distressed sales are expected
- PropTrack data show for-sale listings jumped in October and are now much higher than last year in most cities and regions
SQM Research managing director Louis Christopher has made the prediction in his annual Housing Boom and Bust Report, which forecasts the outlook for the year ahead.
While his "base case" forecast is for average city prices nationally to move in a range of -1 to +3 per cent in 2024, he expects any gains to be concentrated in just two capitals.
"The cities of Perth and Brisbane are the only cities expected to record price rises with each respective market driven by a tailwind of a recovering Chinese economy which is anticipated to see strong demand for base commodities such as iron ore," Mr Christopher wrote.
"However, for much of the rest of Australia, the sharp deterioration of housing affordability, driven by ongoing interest rate rises which are now (in SQM's opinion) at restrictive levels, plus an anticipated slower economy, will see a modest to moderate correction in dwelling prices take place in Sydney, Melbourne, Canberra and Hobart.
"Adelaide and Darwin are anticipated to remain steady or record a minor rise/correction."
Mr Christopher's base case is based on a Reserve Bank cash rate between 4.1-5 per cent (currently it is 4.35 per cent), population growth slowing to 460,000 or less (this year is on track for around 600,000) and unemployment rising to 4.5-5.5 per cent.
His more downbeat scenario is based on a continuing energy crisis that sees inflation remain higher for longer, interest rates rise above 5 per cent and unemployment above 6 per cent.
That would see national property prices fall by up to 3 per cent, with falls as great as 10 per cent in Canberra, 9 per cent in Hobart, 7 per cent in Melbourne and 6 per cent in Sydney, although Perth is expected to rise by the same 5-9 per cent, regardless of the economic scenario, with Brisbane also tipped to weather any storm.
The news for renters is expected to remain grim, with SQM forecasting rents to rise an average of 7-10 per cent again next year, with an even stronger 12-15 per cent in Perth.
Mr Christopher said another strong year of population growth and a fall in new dwelling construction will prop up prices, despite other factors that tend to push them lower, such as rising unemployment and forced sales.
"The interest rate rises of 2022, 2023 and possibly 2024 will finally start to bite home owners and would-be homebuyers alike," Mr Christopher warned.
"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."
Property listings jumped in October
Separate monthly data from REA-owned PropTrack highlights some of the trends SQM is forecasting to drive prices in 2024.
It shows a surge in new for-sale listings on realestate.com.au last month across all the capitals.
That is not unusual during the peak of spring selling season, but the 32.4 per cent jump in Canberra listings and 30.8 per cent in Melbourne were unusually large.
Adelaide (+23.4 per cent), Perth (+20.3 per cent), Hobart (+17.8 per cent), Sydney (+16.9 per cent) and Brisbane (+13.7 per cent) all had double-digit month-on-month listings increases.
But it is over the past year that the different trajectories of the various capital city markets become apparent.
New listings are up 32.5 per cent in Sydney over the past year, 31.7 per cent in Melbourne and 24.5 per cent in Canberra.
Adelaide (+9.9 per cent), Hobart (+7 per cent) and Brisbane (+3.4 per cent) had smaller annual increases in new for-sale listings, while Darwin was flat and Perth had recorded a 7.3 per cent fall in listings.
PropTrack senior economist Angus Moore said for-sale listings are not unusually high, but more typical after a few years of very low sales activity.
"Both Sydney and Melbourne saw a much busier October than last year, which, in part, reflects how quiet spring was in 2022," he noted.
"Activity is now on par with what has been typical for mid-spring over the past decade.
"Listing numbers in October reflect improved selling conditions, more certainty about interest rates, and the fact that prices have been growing across much of the country this year. These factors have supported vendor confidence."
Areas outside the capitals also saw an increase in sales activity, with new listings in regional areas up 9.4 per cent last month and 11.1 per cent on a year earlier.
Including old listings that remain on the market, regional Victoria (+40.7 per cent), regional Tasmania (+34 per cent), Canberra (+23.6 per cent), Hobart (+22.6 per cent) and regional NSW (+22.3 per cent) have seen the largest increases in homes available to buy over the past 12 months.
However, the number of regional properties listed for sale nationally remains 31 per cent below pre-pandemic levels.
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