Real estate enthusiasts have been dealt a strong hand in 2024. The Ace, King and Queen are the tightest ever housing supply conditions, upward pressure on wages and household equity to put to good use.
This rock-solid foundation produced a 10 percent increase in house values during the 2023 calendar year, despite 5 interest rate increases. And there is a better than average chance that the RBA will improve everyone’s hand by cutting interest rates at some stage in 2024.
In just 6-months’ time, the Joker-in-the-pack will be dealt.
The Joker will play some role in producing between 13 and 20 percent capital growth in the 2024 calendar year for one Australian capital city and numerous regional townships.
This comprehensive property market research report explains how the Joker will considerably strengthen the hand of millions of Australian households, in more ways than one.
The report provides an itemised summary of real estate fundamentals and growth drivers.
2023 Market Wrap
This time 12-months ago, the serial fearmongers of the property world were screeching about rising interest rates and a so-called ‘mortgage cliff’.
Australian banks and economists were (once again) predicting 2023 to produce real estate value *declines* of between 3 and 10 percent.
Supported by our trademark production of evidence, we expressed a contrarian opinion. The 2023 Propertyology Market Outlook Report mentioned: “The ridiculously tight housing supply across many Australian locations combined with significant household financial capacity are key pillars that ordinarily propel annual house price growth in excess of 8 percent.”
According to the official data for the 11-months ending 30 November 2023, the combined capital city median house value increased by 9.9 percent.
The generally solid 2023 performance of property markets in most locations across Australia is yet another reminder for people that conditions are never ‘perfect’, the Negative Neville’s and Nelly’s will always focus on the ‘imperfections’, but the combined sum of all factors produce a (net) positive result in most years.
Conditions will not be ‘perfect’ in 2024 either, but the outcome will be positive overall.
The Knowns
As with every other year (without exception), everyone should expect to read lots of stories and statements-without-substance, expressing why we should all be ‘fearful’ in 2024.
In addition to visualising the 50+ years of actual results in the above graphic, intelligent people will process the below indisputable evidence before forming an educated opinion.
- Essential commodity: housing never goes out of fashion. No matter what happens in the world (in any year), the roof over one’s head is as essential as food and water. If required, homeowners will make sacrifices and adjustments in their life to keep the roof over their head.
- Resale supply: the 247,000 properties listed for sale across Australia at the start of this month is 32 percent less than the same time 5-years ago, when 1.7 million fewer people lived in Australia. This all-time record shortage of properties means buyers will have to compete hard.
- Rental supply: directly prior to when the rental crisis started to ripple across Australia this time 7-years ago, there were 78,000 properties advertised for rent. Now the population is 2.5 million greater and there are only 30,000 properties (and most of those are technically already ‘taken’). Like it or loath it, until there’s several consecutive years of very high levels of investor activity, rental supply will remain as tight as a mouse in a matchbox.
- Newly-built supply: there’s nothing wrong with Australia’s ability to construct new housing stock, confirmed again by the 347,000 new homes completed during the last 2 financial years. The real challenges include a significant spike in construction costs, inefficient building regulations, tight labour supply and high property taxes – all which equate to buyers paying a higher price.
- Internal migration: for the 21st consecutive year, more people migrated away from capital cities to regional locations. The shift over that period equates to 428,000 (net) people, equivalent to a city the size of Canberra. Despite a cease to border closures, the rate of Australians relocating has not eased and is highly unlikely to do so.
- Overseas migration: 518,000 (net) overseas migrants during the last financial year is an all-time record high. It will probably be circa 350,000 next year, still well above the decade average of 200,000, but I honestly could not give a tinker’s cuss where it lands. Indisputable evidence confirms overseas migration has nowhere near as much influence on property markets as what the gum-flappers think it does.
- Household wages: the average wage is now increasing at the highest rate in 25-years. Incomes of millions of Australians have already increased by 10+ percent over the last 2-years.
- Job security: during the 3.5 years since the international border first closed, Australia has created 1.2 million jobs – extraordinary. The national unemployment rate has remained steadfastly below 4 percent since March 2022. The evidence confirms that job security in this country has never been better and that upward pressure on wages will continue.
- Household finances: the official data from Australia’s most ethical bank, the RBA, contains proof of Australia’s incredible household finance resilience. We are constantly told about how much debt households have, but the bigger picture includes an awful lot of (both) equity in real estate and cash sitting in offset accounts from years of repetitively paying more than one needs to off our mortgages. The green lines in the chart below are seriously good gear.
- Household discipline: I’m certain most of us would be better off if we eased up on discretionary spending. That said, the official evidence confirms that Australians have managed with 13 interest rate rises within 18-months. Only 0.57 per cent of home loans were 90-days or more in arrears as of 31 August 2023, which remains below the 0.69 per cent pre-pandemic average (2016 and 2021). Everyone is still waiting for an apology from the cast of thousands who constantly yelled “mortgage cliff.”
- Infrastructure investment: while federal and state governments have recently mothballed a number of projects, the national infrastructure pipeline still consists of 400 projects worth a sizeable $120 billion.
- Economic development: industry sectors which are currently enjoying a significant upswing include renewable energy, mining, food production, healthcare and international tourism.
The JOKER in the pack
One of the highest taxed countries in the world will (finally) do what should have been done decades ago and reduce income tax rates.
Completely abolishing the 37 percent tax rate will be one of a few income tax improvements from 1 July 2024.
Separate to any additional wage increases, millions of Australian households will enjoy an extra $10,000 net annual income or more.
Commencing in 6-months’ time, an extra $20 billion will land in Australian pockets each year and then subsequently get reinvested back into the national economy.
For me, this will be Australia’s joker-in-the-pack for 2024-2026.
There is an estimated 2.5 million people in the $80,000 to $100,000 bracket, 2 million earning between $100,000 and $150,000 and 1.2 million with a personal income of $150,000.
That adds up to approximately 5.7 million people whose borrowing power instantly improves in 6-months’ time.
Plus, significant upward pressure on wages is likely to continue for quite some time yet.
Put forward in 2019 by the Morrison government as Stage 3 in a series of tax reforms, the Opposition rejected the proposal at the time. Since coming into office, current Treasurer Jim Chalmers has stated in recent interviews that he has no intention of changing the path which is set. It would be political suicide to do otherwise.
The sizeable increase in take-home pay will benefit household confidence, it will increase business revenues, create more jobs, boost the income of tenants, improve household borrowing power, increase first home buyer activity and support more owner-occupier upgrades.
For property investors, that extra annual income will offset some of the annual shortfall between rental income and investment expenses. It is always a good time to invest in your own future!
Indirectly, this tax adjustment has potential to increase the size of Australia’s rental pool, which would be an enormous win for everyone.
Of course, the lemon-suckers of the world will probably attempt to explain why people having more to show for a good day’s work is a bad idea.
The Probables
- Inflation: after peaking in December 2022, the inflation rate has consistently been reducing. I think it will probably hover between 3 and 5 percent for much of 2024. The closer inflation gets to 3 percent the sooner it will be that the RBA starts cutting interest rates. With the cash rate currently sitting at 4.35 percent, the RBA has a war-chest of circa 1.5 percent at its disposal for whenever it feels the economy needs support.
- Resale supply: listing volumes are noticeably higher in Melbourne and Sydney than other capital cities and they will probably rise further during 2024. The sharpest rises in Australia have been in Canberra, Geelong and Ballarat. Assuming the cash rate remains in the mid-4 percent range (or better), the volume of resale supply across large parts of Australia will continue to be extremely tight.
- Unemployment rate: I anticipate many sensible households will adjust discretionary expenditure, thereby producing a softening in parts of the retail sector and placing some lower-income employees under pressure. The RBA will have something else to ponder whenever the unemployment rate inevitably starts to increase. For proper perspective, an unemployment rate below 5.5 percent is strong (it is currently 3.9 percent).
- Credit policy: CBA announced during Q3 2023 a return of 95 percent LVR’s for property investors; I think it’s an early sign that banks are eager to use policy and pricing intervention to attract investors with good quality credit. A reduction in the debt servicing buffer from the current 3 percent to at least 2.5 percent would benefit Australia in multiple ways, but APRA is likely to do defer such a change until the cash rate cycle shifts.
- Foreign buyers: demand from overseas buyers for Australian real estate during H2 2023 was double 2019 levels and is likely to continue to be strong in 2024.
- Gullible decisions: as rental yields continue to retract and budgets remain under pressure from current interest rate settings, I anticipate many not-so-savvy property investors will be drawn into making asset selection decisions which they’ll regret in years to come.
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- Rent prices: many of Propertyology’s clients received $5,000 extra rental income in 2023 compared to the previous year. Rental supply volumes in 2024 will continue to mirror property policies and the attitudes which politicians have towards property investors. In other words, don’t expect rent prices to ease any time soon.
- Household structures: Australia has entered the early stages of a (self-inflicted) era wherein a growing number of households will resemble structures from the 1910-1960 war era. A growing number of young adults will reluctantly still be living under their parent’s roof, there will be en masse house sharing, people renting a room instead of a property and makeshift housing such as garages. Keep an eye out for significantly more than normal cars parked in suburban streets. All of this is the consequence of now 9-years of policies which attack rental suppliers.
- Natural disasters: floods, fires, cyclones, and hailstorms randomly happen in locations all over Australia every year, but they rarely have a material impact on property markets. Intelligent property investors focus on fundamentals, not emotion associated with weather events.
The Unknowns
- New taxes: governments worldwide took on significant debt to fund their own response to the pandemic. While some governments are well placed to manage their debt, others now have diminished capacity to support economic growth, to fund infrastructure, and they are under greater budget pressure to raise revenue through tax increases. The Victorian and Queensland state governments have already shown their hand in this regard.
- Interest rates: no one ‘really’ knows, including the RBA Board. For what it’s worth, I think we are much closer to interest rate cuts than most people realise.
- Housing policies: whether positive or negative, changes to stamp duty, incentives for investors, grants and rebates for first home buyers, and tweaks to land tax are always possible.
- Election promises: housing challenges have not been this intense in Australia for many decades. Whether an incumbent government or an Opposition trying to arrest control, different governments will aim to please different segments of society. Now more than ever, I think expecting the unexpected is the order of the day. During the 2024 calendar year, expect housing to absolutely dominate campaigns for state / territory elections in Northern Territory (August), Queensland and ACT (both in October). Expect Messrs Albanese and Dutton to become significantly more visible during H2 2024 in the lead up to the next federal election in May 2025.
- Superannuation: be wary of changes that diminish retirement nest eggs and lock them up for longer. I will always be an advocate of investing as much as one can outside of the superannuation vault.
- AirBNB legislation: the Tall Poppy brats are still circling.
- China: whether the world’s second largest economy stimulates or is forced to slowdown has a significant impact on Australia’s very valuable export economy. The path that China chooses will directly affect the price of commodities such as iron ore (think WA), coal (Queensland and Hunter Valley) and countless agriculture products.
- Oil prices: it affects more than the price that the consumer pays at the bowser. Global oil supply levels affect freight costs, the price of consumable goods, inflation levels and interest rate settings.
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2024 Market Forecast
While there has been much change in the world over the last 4-years, the main change regarding Australian property markets relates to what people are fearful about.
From 2020 to 2021, the falsely tagged property market ‘experts’ were fearful about no population growth and lockdowns. From 2022 to 2023, the same ‘experts’ were fearful of mortgage cliffs and interest rates.
The reality though is there has been very little change to the most influential property market fundamentals.
Throughout the last 4-years, I have consistently pointed out that Australia’s property market strength is underpinned by record low housing supply (for sale and for rent), the strongest household incomes in 50-years and the highest ever household equity.
Certain personalities will always be ‘fearful’ of something, but those aforementioned fundamentals will still be present beyond the 2024 calendar year.
Real estate headlines in 2024 will be more of the same stories relating to the rental crisis, migration and taxes. They won’t change market fundamentals though.
The biggest ‘unknown’ for 2024 is inflation.
I am anticipating that, by the end of 2024, inflation will be lower than the start of the year, and that the RBA may have already started cutting interest rates. Household budgets will be in significantly better shape by this time next year after another wage increase in 2024, along with the mid-year income tax cuts and (possibly) interest rate relief for mortgage holders.
Assuming inflation does continue along a similar path to the last 12-months, I anticipate that property markets in general will perform better in 2024 than during 2023.
- Australia’s best: 15 to 20 percent growth is possible in numerous regional locations. I anticipate the highest rates of capital growth in the 2024 calendar year will include Rockhampton QLD, Handorf SA, Bunbury WA, central Queensland, Port Lincoln SA, Albany WA and north Queensland.
- Perth WA: with house price growth of 13 to 18 percent, Perth will be Australia’s best-performed capital city in 2024. At some stage, higher rates of investor participation is likely to result in Perth’s rental market stabilising earlier than many other locations. While passing on sincere best wishes to all real estate owners in the west, Perth’s economic profile does not satisfy the non-negotiable criteria set for Propertyology investor clients.
- Brisbane QLD: the already strong Brisbane property market may be politically stimulated by the state’s October election. 9 to 13 percent growth.
- Adelaide SA: it is now the state with the clearest vision, more sensible policies than most and economic vibrancy… One has not been able to say that about South Australia for many decades. When objectively evaluating the combined sum of all factors which influence property markets, Adelaide has the best overall capital city fundamentals for the medium term. 8 to 12 percent growth.
- Sydney NSW: the current version of Sydney is not the economic powerhouse of the pre-pandemic period. The city with the highest mortgage balances may see an increase in sales listings and softer market conditions. I anticipate 3 to 7 percent growth in 2024.
- Darwin NT: Australia’s Top End capital city has a current median house value that is the same as this time 9-years ago, but it will begin to emerge in 2024. Construction on a number of major projects is due to commence in 2024 and will demand an influx of labour from elsewhere. 3 to 6 percent growth.
- Hobart TAS: the city that produced one of the longest growth cycles in Australian history suffered a 12-month bout of ‘buyer fatigue’ from September 2022. The subsequent rise in resale supply was notable, although it stabilised during Q4 2023 and still sits well below its long-term average. Current fundamentals are solid. The unique economic and natural assets of Australia’s Treasure Island are too good for me to remain anything other than bullish about Tasmania’s medium to long term potential. 2 to 4 percent growth.
- Melbourne VIC: 0 to 3 percent growth. The state’s ability to support economic growth will be significantly hindered for a decade or so due to the enormous state debt, onerous taxes and an interest bill that is fast approaching $1 billion per month.
- Canberra ACT: a sharp rise in supply volumes during 2023, waning public sector confidence, above average mortgage balances and declining internal migration is a recipe for a soft property market. 1 percent decline to 2 percent growth.
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About the author
Simon’s 35-year career began in commercial finance, evolved into mortgage broking (2004 Australian Mortgage Broker of the Year Award) and transitioned into a professional property investor.
Awarded Australia’s Buyer’s Agent of the Year in 3-consecutive years (2012 to 2014), Simon is a Hall of Fame Inductee of both the Real Estate Institute of Australia and the REIQ.
Tertiary qualifications include being a graduate of Australian Institute Company of Directors, property investment advisory, financial planning and finance broking.
Having devoted a lifetime towards studying Australian real estate history to the deepest possible level, Simon has an intimate understanding of the complexities associated with the cause and effect of property market performance.
As the founder of Propertyology, Simon has recruited, trained and developed a team which has helped everyday Aussies to invest in real estate in twenty-three (23) individual cities and towns across 6 Australian states.
The below graphic contains a visual summary of some of Simon’s thought-leading forecasts across the last decade.
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