2024 brings confidence and optimism to the market
The new year of 2024 has started with positive news and optimism. The inflation rate has continued its downward trend that commenced in December 2022, with the monthly Consumer Price Index (CPI) rising by 4.3% in the 12 months to November 2024. This was down from the increase of 4.9% in October and significantly lower than the decades-high of 8.4% in December 2022.
CPI trending downward is crucial because it demonstrates the effectiveness of tightening monetary policy. Trend analysis projects that inflation will return to the target band of 2-3% this year. Lower inflation increases the likelihood of decreases in the cash rate this year.
Additionally, the labor market continues to show its strength, with the unemployment rate remaining at a low level of 3.9% in November 2023. The annual wage growth index was at 4% in September 2023. In the context of higher mortgage repayments and more borrowers transitioning from fixed to variable rates, higher wages mean that homebuyers have more means to whether mortgage stress and upgrade their homes or purchase investment properties.
Building on the momentum of a strong performance in 2023, with the best performing cities recording double-digit growth rates and the top 5 cities recording a 9.5% annual growth, supply and demand will continue to determine price trends in 2024.
On the demand side, population growth remains elevated. The federal government has proposed measures to curb population growth, targeting overseas migrants and students from 2024. However, population growth remains high, projected to increase by approximately 1 million overseas migrants over the next three years. Most of the population increase will be in the major cities, placing more housing demand in the already tight market.
On the supply side, new housing construction activity continues to be below long-term trends. In recent months, the number of new dwelling completions has decreased to just over 40,000 per quarter, down from around 50,000 per quarter before the pandemic. On top of this, new dwelling approvals have consistently trended downward, from 20,600 in March 2021 to 14,100 in November 2024.
Considering both supply and demand factors, the dominant consensus is that not enough housing is being built to cater to demand, which will translate to upward pressure on prices. Nevertheless, not all markets will grow the same; we predict that more affordable cities and market segments, as well as the regions that have or will receive large infrastructure projects, will grow faster in 2024.