By Rich Harvey, CEO & Founder, propertybuyer
Written by: Rich Harvey, CEO & Founder
propertybuyer.com.au
Despite higher interest rates hanging around for longer, property prices continue to rise across the country at differing rates. A massive housing undersupply problem is building momentum and will underpin property price growth over the next decade. This month we compare the latest property price forecasts by the big four banks to reports from two other economic experts, then I examine the positive and negative pressures driving the current market.
If you think property prices are high now- think again - you haven’t seen anything yet. Albert Einstein was famously quoted as saying “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn't, pays it." Buying a well-located property for fair market value today will pay huge dividends if you can ride out the property cycles. Compound capital growth has been a proven strategy for property investors and the bedrock of wealth for many families buying their own home. Recall that I analysed 25 years of data in a previous update which estimated where property prices would be in 20 years’ time (spoiler alert – Sydney median house price will be over $5.0m and Melbourne $3.5m).
Another quote I like to use is “Lotto is for those that don’t understand maths.” Trying to get rich quick is a recipe for disappointment and frustration. Buying a property when interest rates are higher takes courage. A smart strategy is to buy a property when others are fence sitting and when there is negative economic news all around.
Over the next 12 months some significant changes will take place in the property market. I can’t predict with 100% certainty what will happen, but I can tell you from decades of experience, that I have never seen such rapid immigration and population growth leading to structural undersupply so quickly. This chronic under-supply situation will be here for many years and is creating conditions ripe for the next property boom.
Once interest rate cuts come, either late this year or early 2025, the market will re-ignite and instead of 3 people at an auction – there might be 10 or more bidding for the same property. Buying during the winter of economic uncertainty and buying BEFORE the market turns up again is a smart play.
ANZ bank recently updated their property forecasts suggesting capital city house prices will rise between 6% and 7% in 2024, 5% to 6% in 2025, and around another 5% in 2026.
Westpac senior economist, Matthew Hassan, is suggesting slow price growth for Sydney and Melbourne due to affordability constraints compared to sharper rises in Perth, Brisbane and Adelaide driven by short supply and more affordable pricing.
Dr Nicola Powell, Domain's Chief of Research and Economics, is an excellent commentator and forecaster on the property market and recently released Domain’s House and Unit Price Forecast for 2025. Domain’s forecast indicates that we will see new record median prices in Sydney, Brisbane, Perth and Adelaide by the end of FY25.
Sydney’s median house price will exceed $1.7m with an estimated growth rate circa 7% - which is on par with its historical long-term average.
Melbourne prices look set to remain stable over the next year with median house prices just over $1m. Dr Powell points out the current Melbourne downturn has been the slowest and most inconsistent recovery in the city’s history. The long-term value proposition of Melbourne is looking strong for savvy investors.
Brisbane is set to reach the $1m median price by the end of FY25. Brisbane prices continue to be fuelled by ongoing interstate migration (largest of any state), attractive lifestyle and pro-development councils.
Adelaide might also crack the $1m median house price barrier if current projections hold strong. In a similar vein to Brisbane buyers are attracted to easier lifestyle, affordable housing – but the test will be sustained jobs growth and wages.
Perth prices have hit stratospheric growth levels over the past year and look set to come back to more normalised growth levels. Severe supply shortages, ultra-low vacancy rates and rapid investor demand are helping drive this market.
Looking back over time, bank economist forecasts are typically conservative and underestimate the actual extent of property price increases. Notice that Dr Powell’s forecasts are a few percentage points higher than the banks.
Another independent economic research house Oxford Economics recently updated their property forecasts for the next 3 years as follows:
While some property investors reading this article will be critically evaluating each prediction and trying to pick the winning location for their next investment, the reality is that all markets will go through cycles of ups and downs. The smart investor does not place all their investments in one location – they rather look to capture the best growth of each location and consider markets that are currently sluggish to ride the next upturn.
What factors are currently driving the market? Dr Powell from Domain has identified three upward pressures and three downward pressures.
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