Author: Mark Bernberg - Managing Director, Ray White Western Sydney
Goodbye, doom and gloom. Hello, optimism. If 2023 was a poor year characterised by rising inflation, rising interest rates and crashing consumer sentiment, we find ourselves, now in 2024, in quite a different space.
The property market has shown remarkable resilience and growth as we move towards the end of the first quarter of 2024, and what a quarter it's been.
With inflation trending downwards, interest rates on hold (again), and consumer sentiment slowly starting to rise from the depths of despair, 2024 is starting to look very different, supported by a combination of factors that signal a promising yet complex landscape for homeowners, investors, and renters alike.
Market Recovery and Price Forecasts
Sydney leads the recovery among Australian cities, with property prices expected to reach new highs. Projections suggest a growth rate of 6-9% for houses and 2-5% for units in Sydney by the end of the financial year 2024.
This optimism is reflected across different forecasts, indicating a strong market performance despite the economic challenges of the previous years.
“If current house price trends continue this year, house price growth could exceed 10 per cent, with units increasing slightly less.” - Ray White Chief Economist - Nerida Coinsbee
Rental Market Dynamics
The rental market in Sydney has become highly competitive, particularly for units, with significant demand increases. Rental prices have surged, reflecting a 13.4% increase for houses and a 13.3% increase for units year-on-year.
This uptrend is attributed to factors like low vacancy rates, limited new dwelling supply, and high demand, exacerbated by population growth and the return of immigrants to the city. More on that in a moment.
Interest Rate Environment and Economic Factors
The interest rate, currently at 4.35%, is a crucial factor influencing the property market. Forecasts by major banks suggest potential rate cuts in the later stages of 2024 or early 2025, which could further stimulate market activity.
This is aligned with broader economic predictions and the performance of the housing market in the face of rate hikes and inflation challenges.
Population Growth and Housing Demand
Sydney's appeal to incoming investors and first-time buyers is expected to remain strong, driven by increased immigration and a tight rental market. Charter Keck Cramer suggests that over 70% of migrants, in their first five years in Australia, look to own or rent an apartment.
Source: Matusik Missive
Australia’s population growth has bounced back big time after the Covid restrictions and the country’s annual increase is currently close to 625,000 (twice the annual average population increase over the past decade). The majority of this, as expected, is from net migration growth.
Recent data from the Australian Bureau of Statistics indicates a forecasted annual population growth of 390,000 people over the next decade in Australia, marking a 10% increase over the annual growth rate experienced in the ten years prior.
“There will be the need to build some 1.2 million new dwellings – 240,000 each year – over the next five years to accommodation this expected increase in people” - Michael Matusik
Let me make this easier for you to grasp.
By 2027, the population is anticipated to surge by 2.3 million. This is the equivalent of building another Perth. Yup, you read that right!
Future Outlook
Despite the optimistic projections, the market faces affordability challenges and a complex interplay of economic factors. The pace of growth might be contained by factors like affordability, rising interest rates, and the ongoing mortgage serviceability challenges.
However, the underlying demand, supported by migration-led population growth and coupled with limited supply, will continue to drive competition and prices up!
In essence, the Sydney property market is navigating through a period of recovery and growth, with several indicators pointing towards continued strength.
Potential buyers and investors must consider the broader economic context, including interest rates and affordability challenges, as they look to make decisions in this really fast-moving and dynamic property market we find ourselves in.
