Positive Growth Streak Continues
Property prices have demonstrated sustained growth for five consecutive months. In July 2023, the national housing market saw a notable increase of 0.9%, resulting in an annualised growth rate of 10.8%. Notably, not all capital cities experienced equal growth; Brisbane, Adelaide, and Perth led the way with impressive month-on-month growth rates of 1.4%, 1.4%, and 1%, respectively, translating to annualised growth rates of 16.8%, 16.8%, and 12%. This consistent growth over the past five months signals a robust recovery in the housing market.
Rental Market Continues to Surge
The rental market on the other hand, shows no signs of easing. Australian rent values rose by an additional 0.6% in July, bringing the national annual increase to 9.4%, the highest in decades. This trend is exacerbated by a housing shortage and a surge in population growth, primarily driven by overseas migration. Vacancy rates are reaching critically low levels, a balanced rental market sees vacancy rates around 3%, currently Perth is the tightest market at 0.5% vacancy, and Canberra has the highest vacancy rate at 2.1%. Due to ongoing construction challenges, it is projected to take 2-3 years for the rental market to return to a normal and healthy vacancy rate around 3%. During this adjustment period, low vacancy rates and high rental yields will likely continue to exert upward pressure on property prices.
Population Growth Fuels Demand
Australia’s population growth has reached historic levels, increasing by nearly 400,000 people during the 2022/23 financial year. The majority of this increase was driven by overseas migration, workers, and students, primarily settling in major metropolitan areas, including Sydney, Melbourne, Brisbane, Perth, and Adelaide. Looking ahead, predictions indicate that Australia’s population will surge by 1.5 million people, equivalent to the size of Adelaide, within the next three years. This projected growth solidifies strong housing demand, especially considering the context of low dwelling approvals and anticipated dwelling completions.
RBA Maintains Current Cash Rate
Over the past two months, the Reserve Bank of Australia (RBA) has maintained the cash rate at 4.1%. This decision aligns with more favorable macroeconomic trends, including declining inflation, a higher unemployment rate, and reduced spending by businesses and consumers. The RBA has noted that the previous tightening cycle of the cash rate has proven effective in curbing inflation and balancing supply and demand in the economy. This significant shift is a key factor influencing the RBA’s decision to keep the current interest rate steady and consider future cuts. Our research suggests that the market typically experiences substantial movements both before and after a cash rate cut, a move that is predicted to occur in mid to late 2024, once the inflation rate returns to the target range of 2-3%.
Recovery in Housing Loan Commitments
Housing loan commitments have rebounded from their low point in April 2023. A critical factor impacting housing prices is the availability of housing loans to buyers from mortgage providers. Recent ABS data indicates that buyer confidence in the housing market has grown, as the amount of housing loans extended to buyers increased from $23.2 billion in February 2023 to $24.4 billion in June 2023. This rise aligns with long-term macroeconomic fundamentals, including income and population growth, and is expected to support the sustainable recovery of property prices.
Future Market Projections
Looking ahead, considering the current market dynamics and elevated prices in high-end segments of major capital cities, we anticipate that the most affordable segments, particularly those in proximity to large-scale infrastructure projects, will perform strongly. In some key markets, property values are projected to potentially double in the next seven years while still offering attractive rental yields. Through thorough analysis of extensive datasets encompassing macroeconomic factors and property market fundamentals, we can identify cities or regions with the highest potential for capital growth and rental yield, tailored to the unique needs of our clients.