Property prices have recorded 16 consecutive months of positive month-on-month growth
The current upswing in housing values shows no signs of slowing down. National housing values increased by 0.8% in May 2024, marking its 16th straight month of growth since January 2023.
Consistent with our predictions, Perth, Adelaide, and Brisbane are the top-performing cities, recording growth rates of 2%, 1.8%, and 1.5% over the last month, or 22%, 14.4%, and 16.3% over the last 12 months.
On an average property of $1m, investors in Perth, Adelaide and Brisbane have pocketed $220,000, $144,000 and $163,000 respectively over the past 12 months.
The remaining capital cities are showing lower growth rates for May 2024, with Melbourne, Sydney and Hobart growing by 0.1%, 0.6% and -0.5%, respectively.
Domain’s latest forecasts suggested that property values in Perth, Adelaide and Brisbane will grow strongly in the next 12 months, in the range of 7-10%, while Melbourne and Canberra are likely easing.
The difference in growth rates between capital cities can be broadly explained by the affordability factor. While household income is similar across capital cities, house prices in Perth, Adelaide, and Brisbane are 50% lower than in Sydney. This significant affordability gap is one of the main factors driving up demand from both local and interstate investors.
Rental market showing no signs of easing
National rent values increased by 8.5% over the past 12 months, which is 2-3 times higher than the long-term average. This happens on the backdrop of housing shortage and a surge in population growth; the vacancy rate has been trending toward a critically low level at 0.6% in Adelaide, 1% in Brisbane, 0,6% in Perth, 0.9% in Darwin, 1.4% in Sydney, 1.3% in Melbourne, 2.1% in Canberra and 1.4% in Hobart. Due to the current construction challenges, it is projected to take 2-3 years for the rental market to return to the normal and see a healthy vacancy rate between 2-3%.
The RBA has kept the cash rate unchanged since November 2023, cuts are on horizon
The RBA reports that inflation has significantly decreased since its peak in 2022, due to higher interest rates helping to balance aggregate demand and supply. However, recent data shows that the rate of decline has slowed, with inflation still above the midpoint of the 2–3% target range. Over the year to April, the monthly CPI indicator increased by 3.6% in headline terms and by 4.1% excluding volatile items and holiday travel.
The Board’s top priority is to return inflation to the target range within a reasonable timeframe, in line with the RBA’s mandate for price stability and full employment. The Board must be confident that inflation is moving sustainably towards the target before considering the cuts.
Despite sticky inflation, economists generally agree that cash rate cuts are expected in late 2024 and early 2025, aligning with the forecasts of the big four banks.
What will happen in the next 6 months
Considering the current market dynamics and elevated prices in the high-end segments in the major capital cities, we forecast that the most affordable segments that are in major capital cities and being close to large scale infrastructure projects are predicted to perform strongly. In some key markets, we estimate that the property values will increase in the range of 8-10% per year. By diligently analysing extensive datasets encompassing macro-economic factors and property market fundamentals, we’re able to pinpoint cities or regions with the highest potential for capital growth and rental yield, tailored to the unique needs of our clients.