Greener Homes, Living Alone And Ongoing Rate Pain
Ray White’s chief economist outlines her predictions for housing market trends in 2024
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Ray White’s chief economist, Nerida Conisbee says property price growth will continue next year and mortgage holders will need to “survive until 2025” amid expectations of higher interest rates for longer.
Ms Conisbee said strong population growth and a housing supply shortage combatted the impact of rising interest rates in 2023, leading to unusually strong price growth during a rate hiking cycle. The latest CoreLogic data shows home values have increased by more than 10 percent in the year to date in Sydney, Brisbane and Perth. Among the regional markets, price growth has been strongest in regional South Australia with 8.6 percent growth and regional Queensland at 6.9 percent growth.
“As interest rates head close to peak, it is expected that price growth will continue. At this point, housing supply remains extremely low and many people that would be new home buyers are being pushed into the established market,” Ms Conisbee said. “Big jumps in rents are pushing more first home buyers into the market and population growth is continuing to be strong.”
Ms Conisbee said interest rates will be higher for longer due to sticky inflation. “… we are unlikely to see a rate cut until late 2024 or early 2025. This means mortgage holders need to survive until 2025, paying far more on their home loans than they did two years ago.”
Buyers in coastal areas currently have a window of opportunity to take advantage of softer prices, Ms Conisbee said. “Look out for beach house bargains over summer but you need to move quick. In many beachside holiday destinations, we saw a sharp rise in properties for sale and a corresponding fall in prices. This was driven by many pandemic driven holiday home purchases coming back on to the market.”
3 key housing market trends for 2024
Here are three of Ms Conisbee’s predictions for the key housing market trends of 2024.
Luxury apartment market to soar
Ms Conisbee said the types of apartments being built have changed dramatically amid more people choosing to live in apartments longer-term and Australia’s ageing population downsizing. “Demand is increasing for much larger, higher quality, more expensive developments. This has resulted in the most expensive apartments in Australia seeing price increases more than double those of an average priced apartment. This year, fewer apartments being built, growing population and a desire to live in some of Australia’s most sought-after inner urban areas will lead to a boom in luxury apartment demand.”
Homes to become even greener
The rising costs of energy and the health impacts of heat are two new factors driving interest in green homes, Ms Conisbee said. “Having a greener home utilising solar and batteries makes it cheaper to run air conditioning, heaters and pool pumps. We are heading into a particularly hot summer and having homes that are difficult to cool down makes them far more dangerous for the elderly and very young.”
More people living alone
For some time now, long-term social changes such as delayed marriage and an ageing population have led to more people living alone. However, Ms Conisbee points out that the pandemic also showed that many people prefer to live alone for lifestyle reasons. “Shorter term, the pandemic has shown that given the chance, many people prefer to live alone with a record increase in single-person households during the time. This trend may influence housing preferences, with a potential rise in demand for smaller dwellings and properties catering to individuals rather than traditional family units.”
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This may be contributing to continually rising weekly rents
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There has been a substantial increase in the number of Australians earning high incomes who are renting their homes instead of owning them, and this may be another element contributing to higher market demand and continually rising rents, according to new research.
The portion of households with an annual income of $140,000 per year (in 2021 dollars), went from 8 percent of the private rental market in 1996 to 24 percent in 2021, according to research by the Australian Housing and Urban Research Institute (AHURI). The AHURI study highlights that longer-term declines in the rate of home ownership in Australia are likely the cause of this trend.
The biggest challenge this creates is the flow-on effect on lower-income households because they may face stronger competition for a limited supply of rental stock, and they also have less capacity to cope with rising rents that look likely to keep going up due to the entrenched undersupply.
The 2024 ANZ CoreLogic Housing Affordability Report notes that weekly rents have been rising strongly since the pandemic and are currently re-accelerating. “Nationally, annual rent growth has lifted from a recent low of 8.1 percent year-on-year in October 2023, to 8.6 percent year-on-year in March 2024,” according to the report. “The re-acceleration was particularly evident in house rents, where annual growth bottomed out at 6.8 percent in the year to September, and rose to 8.4 percent in the year to March 2024.”
Rents are also rising in markets that have experienced recent declines. “In Hobart, rent values saw a downturn of -6 percent between March and October 2023. Since bottoming out in October, rents have now moved 5 percent higher to the end of March, and are just 1 percent off the record highs in March 2023. The Canberra rental market was the only other capital city to see a decline in rents in recent years, where rent values fell -3.8 percent between June 2022 and September 2023. Since then, Canberra rents have risen 3.5 percent, and are 1 percent from the record high.”
The Productivity Commission’s review of the National Housing and Homelessness Agreement points out that high-income earners also have more capacity to relocate to cheaper markets when rents rise, which creates more competition for lower-income households competing for homes in those same areas.
ANZ CoreLogic notes that rents in lower-cost markets have risen the most in recent years, so much so that the portion of earnings that lower-income households have to dedicate to rent has reached a record high 54.3 percent. For middle-income households, it’s 32.2 percent and for high-income households, it’s just 22.9 percent. ‘Housing stress’ has long been defined as requiring more than 30 percent of income to put a roof over your head.
While some high-income households may aspire to own their own homes, rising property values have made that a difficult and long process given the years it takes to save a deposit. ANZ CoreLogic data shows it now takes a median 10.1 years in the capital cities and 9.9 years in regional areas to save a 20 percent deposit to buy a property.
It also takes 48.3 percent of income in the cities and 47.1 percent in the regions to cover mortgage repayments at today’s home loan interest rates, which is far greater than the portion of income required to service rents at a median 30.4 percent in cities and 33.3 percent in the regions.
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