Property Price Growth to Slow in 2024 Before Bouncing Back in 2025: Oxford Economics Australia

2024 is expected to be a softer year for home prices than last year, increasing a muted 2.7%.        Leading the pack, Perth’s property market is expected to outperform over the next three years

Monday, January 22, 2024 – Having fully recouped the losses sustained during 2022, Australia's median home price hit an estimated new record of $939,000 in December 2023, according to leading property industry analyst and economic forecaster, Oxford Economics Australia.  

However, according to the company’s Residential Property Prospects report, which forecasts property prices and the rental market to 2026, it expects 2024 will be a softer year for home price growth.  

The housing sector looks to be at an inflection point moving into 2024. The positive factors supporting price growth in 2023 have started to fade. Auction clearance rates have softened from 70 per cent to near 60 per cent, while monthly price growth has moderated, with some capital cities recording negative quarterly results.  

“Capital city performances have diverged in recent months. Total listings have risen in Melbourne and Sydney, a trend we expect will continue in coming quarters, acting to slow price growth,” said Maree Kilroy, report author and Senior Economist at Oxford Economics Australia. “Tailwinds will serve to propel prices in Perth, Brisbane, and Adelaide. Low levels of advertised listings and affordability in pockets will prop up prices in these cities next year. Interest rate cuts from late 2024 should boost credit availability, accelerating broad price growth once again.”  

Affordability has deteriorated significantly over the past two years. This will play a key role in containing the pace of growth, especially for houses. However, a significant dwelling stock deficiency is geared to persist across all of Australia's major population centres, placing a floor under prices.  

The company forecasts muted home price growth of 2.7 per cent nationally in 2024, with the median all-dwelling price forecast to grow an average of 6.3 per cent p.a. over the two years to FY2026. Units will outpace houses, lifting 7.6 per cent versus six per cent p.a., respectively. 

Meanwhile, record-breaking overseas migration flows have exacerbated an already tight rental market, with the national vacancy rate holding at an extreme low of one per cent. Total dwelling rents are estimated to have ended 2023 up 14.3 per cent, with growth heavily skewed towards units (+18.3 per cent). Quarterly growth has eased from its extremes but should nonetheless remain elevated near term. House and unit rents are forecast to grow by 4.1 per cent and 5.8 per cent respectively in 2024.  

“Rental affordability has deteriorated over the last two years,” said Kilroy. “This is especially evident in Sydney and Adelaide, which is forcing larger rental households to be formed.” 

The ability to add rental supply to the market remains limited as capacity constraints hold back the delivery of new housing. The eventual flow through of completions over 2024 is expected to add somewhat to rental supply – but more importantly, it will reduce demand pressure as some households transition into owner-occupation.  

“The Perth rental market is expected to outperform over the forecast horizon, driven by nation-leading population growth and a relative affordability advantage”, said Kilroy.

However, the ability of households to absorb higher rents is topping out. With this, rental growth is projected to recede to an average of 2.6 per cent over the two years to June 2026 – a rate not too far removed from consumer inflation.  

Gross rental yields have lifted and so too have investor loans. Looking ahead, the return of interest rate cuts from late 2024 will ease leveraged property outgoings; however, state and federal governments have moved to increase charges on residential property investors – both domestic and foreign. State governments are targeting holiday rentals as a source of supply for the long-term rental market. Multiple states have announced – or are in the process of actioning – policy in this space. Outside of specific holiday postcodes, the upside for rental supply is likely small.  

OUTLOOK FOR PRICE GROWTH BY REGION TO 2026

Sydney

Increasing an estimated 10.3 per cent over 2023, Sydney's median house price is estimated to have exceeded its previous peak in the December quarter 2023, reaching $1.6 million. However, the pace of growth is slowing; a function of an additional interest rate lift in November and rising total listing volumes. Fading demand stamina is showing through in softening auction clearance rates.

Oxford Economics Australia expects this trend to continue through early 2024, resulting in house price growth of only 3.3 per cent, and 5.2 per cent for units in FY2024.  

“With the context of a growing dwelling stock deficiency, the return of interest rate cuts will drive the next acceleration of price growth from late-2024 onwards,” said Kilroy.  

Housing affordability remains a major concern for Sydney. Oxford Economics Australia expects the relatively cheaper price point of units to help back stronger growth near term. Sydney's median house and unit price are forecast to increase 5.9 per cent and 8.3 per cent p.a. respectively over the two years to June 2026.  

Investors play a key role in the Sydney market. The Federal Government announced increased taxes for foreign purchases late last year. It raised the withholding tax rate applied to the sale of a property by a foreign vendor to 15 per cent (previously 12.5 per cent), tripled the foreign investment fee for purchases of established homes, and doubled the vacancy fee for homes owned by overseas investors. Oxford Economics Australia expects the impact of these changes to be modest and limited to specific postcodes concentrated in Sydney.  

Melbourne

“Rising total listings have provided greater options for buyers in Melbourne, reducing urgency to purchase, in turn leading to easing conditions,” said Kilroy. “Slower growth in the upper quartile has become increasingly evident, hinting that, as affordability worsens, demand is being deflected from the more expensive price bracket to the middle of the market.” 

Oxford Economics Australia expects the median all-dwelling price to hold flat over FY2024. Auction clearance rates are trending downward, while growth in investor lending for Victoria is the weakest of the mainland states. Simultaneously, investors have become more active on the sell side.  

Sentiment is being weighed down by policy headwinds. The Victorian Government announced a slew of policy changes that impact property investors. These include expanding the Vacant Residential Land Tax, adding an extra one per cent tax on residential land left undeveloped for more than five years in established areas of Melbourne, and reducing the tax-free threshold for land tax payments from $300,000 to $50,000, which took effect 1 January 2024. 

The resurgence in migration inflows will be a key support to housing demand in the recovery from FY2025 onwards. In addition to the sharp rebound in overseas arrivals, Melbourne’s net interstate migration has returned to an almost balanced position.  

Over the two years to June 2026, both the median house and unit price are forecast to increase 5.5 per cent and 6.5 per cent p.a. respectively. By this point, Melbourne's median house price will reach $1.16 million. 

Brisbane

Since bottoming out in the December quarter of 2022, Brisbane became one of the strongest markets through 2023. Advertised stock levels are running more than 30 per cent below average, while the volume of home sales is trending almost five per cent above average levels.  

“The Brisbane market continues to benefit from relative affordability compared to the southern capitals, alongside strong future employment prospects, demand fuelled by interstate and overseas migration, and a scarcity of new dwelling supply,” said Kilroy.  

The median house price is forecast to lift 5.9 per cent in FY2024 – the third strongest increase behind Perth and Adelaide. Units (+8.2 per cent) are forecast to grow ahead of houses, gradually closing the price gap that has emerged in recent years. The return of interest rate cuts from late-2024 should facilitate even stronger price growth over the two years to FY2026.  

Demand fundamentals are expected to remain strong, with Queensland positioned at the front of the pack in terms of population growth. The soft near-term supply outlook means pressure on the housing stock is set to endure, setting a strong platform for further growth once the current monetary policy tightening cycle reverses. Adding to this, the 2032 Olympics should provide a sustained boost to developer and buyer optimism from mid-decade. The doubling of the First Home Buyer Grant to $30,000 for new dwellings from 20 November 2023 to 30 June 2025 will divert some demand away from the lower-end established market but will likely have a minimal impact on the median price.  

Adelaide

Adelaide’s property market has proven resilient. South Australia continues to record historically strong population growth, running at a record rate of 1.7 per cent in FY2023 as the state’s net overseas migration inflow trends upwards.  

“In recent years, population gains in Adelaide have been driven by the return of expats among increased interstate inflows,” said Kilroy. “Having higher purchasing power on average, they have been a key factor in propping up prices and driving momentum in the market.”  

Despite recent vigour, Adelaide has maintained its affordability advantage over the East Coast, while a tight rental market is likely also incentivising more owner-occupation activity amid an ongoing rental crisis. 

Listings have trended downwards since August 2023, which has combined with solid demand fundamentals to drive strong growth. The median all-dwelling price is forecast to rise an average 5.8 per cent p.a. over the three years to FY2026, reaching $804,000.  

Perth

Perth is Australia's top performing capital city for price growth. Having bucked the national downturn, property prices have approached double digit-growth. With the lowest median house price of all the major capital cities, the Western capital has been able to maintain a considerable affordability advantage over its peers. 

Near term, fundamentals are geared to remain positive. Western Australia continues to record nation-leading population growth (+3.1 per cent for FY2023), while the state’s unemployment rate remains low. Acute capacity constraints persist, driving delays in new home completions which, alongside construction cost blowouts and strong rental growth, are pushing owner-occupier demand towards the established dwelling stock. Total advertised listings have trended lower over 2023 alongside above average purchasing activity. These factors combine to place upward pressure on prices. 

Momentum is set to be sustained near term. Perth is well equipped to lead the pack over the forecast period as the city develops a more sizeable dwelling stock deficiency. The median house price is forecast to grow by more than 10 per cent in FY2024, slowing to a still solid 9.8 per cent in FY2025. Prices are projected to eclipse those in Adelaide by mid-2025.

A similar profile is expected to play out for unit price growth over the same period. Both dwelling types are forecast to outpace the other capital cities, rising by more than 9.7 per cent p.a. over the next three years. Risk is to the upside, with it noted that the Perth property market has shown a propensity for significant swings in price cycles. 

Canberra

The Canberra median house price ended FY2023 down 6.4 per cent to $968,000, reflecting one of the deeper price slides nationally. New listings are running above prior years, which is limiting competition for the stock on market and seeing Canberra avoid the rebound seen in other cities. Further impacting is additional student accommodation coming online, while dwelling completions surged 15 per cent in FY2023. Oxford Economics Australia expects both house and unit prices will hold relatively flat in FY2024. 

Canberra is set to remain the second-most affordable market to purchase in Australia. Support is coming from above average wages in the public sector, which rose 3.5 per cent over the year to September 2023 as a series of new enterprise bargaining agreements kicked in – the fastest rate of growth since June 2011. Once interest rate cuts begin in late-2024, the lower levels of household financial stress will provide support alongside the continued return of international students. Unit prices are set to continue outpacing houses, averaging 6.3 per cent p.a. compared to 5.9 per cent p.a. for houses, which will once again exceed the median $1 million mark in FY2025. 

Hobart

Marginal declines are anticipated for median house and unit prices over FY2024, falling 1.4 per cent and 3.2 per cent y/y respectively. Poor affordability, combined with the slowest rate of population growth in the nation are driving a tamer demand profile and seeing Hobart diverge from the rest of Australia’s capital cities.  

Hobart’s net interstate migration outflow has become more sizeable, reflecting the reset of migration patterns beyond the pandemic (both from young adults and lifestyle). Interest rate falls from late 2024 and a strong pipeline of public investment are expected to spur price growth from FY2025 onwards. 

Darwin

Darwin was the worst-performing market in FY2023. The median house price fell 8.9 per cent to $536,000 and units by 5.9 per cent to $376,000. This weakness is despite being Australia’s most affordable capital city and exhibiting by far the highest gross rental yields across the capital cities. 

Patchiness is showing through in quarterly price volatility as momentum fails to build. Off a period of sustained weakness, population inflows continue to show trend improvement, increasing 0.9 per cent in FY2023. Although the outlook for mining investment is not as promising as pre-COVID, government investment, particularly in defence, will continue to drive employment growth, and we expect the labour market to perform relatively well over in coming years. 

Initially, modest growth in houses is expected over FY2024 (+3.3 per cent), before picking up significant pace in FY2025 (+7 per cent) and FY2026 (+8.2 per cent). This will see the median price hit a new record level of $641,000. Units are forecast to perform similarly, growing at around eight per cent p.a. over the three years to June 2026. 

Wollongong and Newcastle

Both cities maintain their affordability advantage over Sydney, while remote work has allowed for the migration of cashed-up city dwellers to these areas. Given their higher capacity to pay, they will be able to exert upward pressure on the market over FY2024. 

Internal migration to these markets, although easing, is expected to rebase above pre-pandemic levels, and this is set to maintain pressure in the market. Vacancy rates are holding at a level below that of Sydney, while the expected cash rate cuts beginning late 2024 are anticipated to drive an acceleration in price growth through mid-decade.  

We anticipate the price differential between these two cities will hold over the forecast period, with the Newcastle median house price forecast to reach $972,000 by June 2026, while Wollongong is set to hit $1.09 million. 

Gold Coast and Sunshine Coast

Despite the impulse to demand from young families and retirees who migrated north through the pandemic, these markets were not immune to rising interest rates. The median Sunshine Coast house price fell four per cent over FY2023 to $960,000. The Gold Coast exhibited more resilience, recording only two quarters of decline and rising 2.4 per cent in FY2023 – a better performance than Greater Brisbane.  

The volume of listings has normalised, aiding the return of price growth, particularly on the Gold Coast. The strong return of overseas migration has added to demand pressure. This can be seen in the rental market, with vacancy rates tightening in recent months.  

Growing land constraints and 2032 Summer Olympics-related optimism position each market for price growth. Over the three years to June 2026, Gold Coast and Sunshine Coast median house prices are forecast to increase 5.5 per cent and 6.5 per cent p.a. respectively, remaining more expensive than Brisbane. Given affordability issues in South East Queensland, unit prices are arguably well placed to be the main beneficiaries of this upturn, outpacing houses. 

Townsville and Cairns

Prices in North Queensland are starting from a more affordable base, while the downward trend in total listings is limiting the pass through of tight credit conditions. Quarterly growth returned in both markets in Q3 2023, with the median house price hitting $580,000 in Cairns and $410,000 in Townsville. 

Oxford Economics Australia forecasts that the median house price will rise by near six per cent p.a. in both regions over the three years to FY2026. This will see them outpace Brisbane, closing the price gap to the state’s capital. Elevated home insurance costs in North Queensland dragged on house price growth over the past decade. The introduction of the $10 billion Northern Australia Cyclone Reinsurance Pool in mid-2022 provides a potential upside for house prices via the reduction of insurance premiums.  

Risk exists for the Cairns market as the impact of tropical cyclones plays through. Ex-tropical cyclone Jasper caused a record level of rain resulting in significant flooding. This will impact the dwelling stock, likely pushing some residents into the rental market in the short-term. 

About Oxford Economics Australia

Oxford Economics Australia, formally known as BIS Oxford Economics, is Australia's leading provider of industry research, analysis and forecasting services. Following the acquisition of BIS Shrapnel in 2017, Oxford Economics Australia now has unparalleled capabilities in helping clients to understand issues across over 100 sectors at the granular local area through to the global economy. This analysis is underpinned through robust economic models that are fed by reliable and most importantly detailed market data, analysis of developments, and thoroughly researched forecasts.