Australian housing market 2023: Prices were supposed to go down, but they went up. What will 2024 bring?
This year has left many of us scratching our heads, questioning how – and why – property prices went up.
To say the property market took the nation by surprise in 2023 would be an understatement. We entered the year with forecasts predicting that interest rates would keep rising (they did) and house prices would keep softening (they didn’t).
The reverse happened. The year that was is one that some might prefer to forget, with interest rates being hiked, a bank squeeze on credit, horrendous shortages of rental property and crippling cost-of-living rises.
When that’s coupled with the “fear of missing out” among buyers and the “fear of not finding anywhere else to live” among vendors, and fear generally from both tenants and investors, it’s been a tough 12 months all round.
How did house price growth defy interest rates?
It should not have been fertile grounds for a price recovery.
The once-in-a-generation property boom of 2021 ground to a halt in 2022 as inflation surged to a 20-year high, and the Reserve Bank of Australia began lifting the cash rate.
A sharp downturn in most capital cities followed, amid talk of a looming recession.
This year was going to be the year buyers would have the upper hand and nab a “bargain” (relatively speaking, of course).
But this is Australian real estate. It is nothing if not endlessly surprising.
Prospective sellers were understandably cautious in the first half of this year, holding back on listing their homes for sale, but that scarcity of new listings fueled buyer competition.
Unprecedented population growth following the pandemic, low unemployment and the extraordinarily tight rental market meant there were more buyers than sellers in the market. And so, property prices went up.
Then, motivated by the price recovery and the belief that interest rates were close to their peak, sellers regained confidence.
Winter became the new spring, with an influx of properties hitting the market at a traditionally quiet time.
Despite the rise in listings, prices have continued to increase since then, just not as quickly. But they are still increasing.
It’s been a bitter pill to swallow for those looking to get a foot onto the property ladder. Not only is it more expensive to buy (not to mention rent), but each interest rate rise has slashed borrowing capacity.
Over the past 18 months, mortgage holders have been slugged with 13 rate hikes, including five this past year, to lift the cash rate from 0.1 per cent to 4.35 per cent.
One of the more dominant and prevailing headlines going into this year was the “fixed-rate cliff”. Some speculated it would have catastrophic consequences for Australia’s housing market when thousands of mortgage holders came off their lower fixed-rate loans, causing an avalanche of fire sales and home prices plunging.
But again, it was not to be. Report found the rolling-off of fixed rates has, by and large, not translated into a spike in distressed listings, and mortgage arrears are sitting at historic lows.
“The impact on borrowing capacity and mortgage affordability has cut deeply [but] despite the higher interest rates, the vast majority have managed the transition,”
Why did prices rise so rapidly?
The answer lies in a combination of factors but is undoubtedly led by Australia’s housing undersupply.
The severity of our housing undersupply has been “laid bare” this year because it happened to collide with rapid population growth.
Our housing shortfall runs far deeper than initially thought. This is the year that has uncovered that, and Australia has had a real wake-up call about our undersupply of housing.
The shortfall of housing in this country has been placed well and truly in the spotlight and become part of the mainstream national conversation. This has certainly overflowed into the rental market, driving the longest continuous stretch of rising asking rents on record.”
Australia’s housing undersupply is more dire and more urgent than perhaps anyone, particularly the government, realized.
“If you are that person who can’t buy a home, or you can’t get a rental, or you’re homeless, or even if you’re living in a home that doesn’t suit your needs – we call it under-housed – then it is a dire situation,”.
“Hopes to continue to be dashed. There is a generational divide being created. And there is also that intergenerational wealth that will continue to unfold as Baby Boomers age. They will pass on their properties, or even skip a generation and pass it on to their grandchildren, making it even worse.
“If you are not in a family like that who will shift the dial for you, it will be very difficult to shift the dial for yourself.”
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