4 Trends in Property Market in 2023
Price Trend
In 2023, the housing market underwent various stress tests, including higher interest rates, a surge in demand due to population increase, persistent housing shortages, and the transition from low-fixed rates to high variable rates. Over the last 12 months, housing values in the aggregate of 5 capital cities increased by 9.5%, significantly higher than the long-term average of 7-8%. Notably, the key markets we actively recommend to our clients experienced high growth rates in the last 3 months, which are equal to annualised rates of: Perth (21.2%), Brisbane (14%), and Adelaide (16.4%).
Low Supply
A major trend in 2023 was the consistently low level of supply across all price segments. According to CoreLogic, at the end of November, total advertised stock levels were around 170,000 properties, 15% lower than the previous five-year average. Consequently, the total number of transactions was 479,477, below the decade annual average of 487,978 or down by 18%. The low supply can be explained by two factors. First, housing completions have remained below the long-term average due to higher construction costs and global supply chain disruptions. Second, homeowners delay upgrading or downgrading due to reduced borrowing capacity and a reduced level of available homes. The supply level is predicted to take a few years to return to long-term trends.
Investor Activity
Investor activity serves as a leading indicator predicting future market trends. Historically, higher investor activity leads to more transactions and increased prices. In October, investor finance accounted for 35.6% of new mortgage lending. Overall, lending to investors has trended upward across the five largest capital cities, rising from $7.7b in February 2023 to $9.4b in October 2023. Investors have reevaluated their decisions based on a higher but more stable interest rate environment, as well as growth prospects resulting from high population-led demand in the medium to long term.
Interest Rate
Over the last 18 months, interest rates have recorded the fastest tightening cycle in decades, rising from 0.1% in May 2022 to 4.35% in December 2023. The RBA’s ultimate goal was to curb inflation to the policy target of 2-3% within a reasonable timeframe. Recent economic data trends have shown positive signs, with the inflation rate decreasing from 7.2% in December 2022 to 5.3% in October 2023, and GDP growth rate easing to 0.2% in the September 2023 quarter.
The next question is when the RBA will start cutting the cash rate, in turn reducing interest rates. The RBA will most likely initiate an easing cycle when the inflation rate returns to the target of 2-3%, predicted by the end of 2024 and early 2025. However, analysing the effects of the cash rate on property prices does not strongly support it being a major driver. In the past 12 months, as rates increased, so did property prices.
Hence, supply and demand will continue to determine price trends in 2024. On the demand side, population growth remains high, estimated at an approximate increase of 1 million overseas migrants over the next 3 years. On the supply side, new housing construction activity continues to be below long-term trends. Nevertheless, not all markets will grow the same due to higher prices nationwide. We predict that more affordable cities and market segments will grow faster than the more expensive ones.