Australian Property Market Resilience and Growth in 2023

The Australian housing market defied expectations in 2023, showcasing surprising resilience in the face of rising interest rates. While whispers of a downturn swirled, the reality painted a different picture: property prices rebounded in many regions, even reaching new highs.

Factors Contributing to Resilience

This resilience can be attributed to several factors, including:

1. Persistent housing shortage: The supply of homes for sale remains limited, particularly with Australia’s robust population growth. This imbalance continues to exert upward pressure on prices and rents.

2. Strong underlying fundamentals: The Australian economy remains healthy, with low unemployment and rising wages. This provides stability and confidence for potential buyers.

3. Potential stabilisation of interest rates and inflation: Recent indications suggest that the rapid rise in interest rates may be nearing its peak. Additionally, inflation appears to be coming under control. This could lead to renewed buyer activity in the near future.

Residential Real Estate and Australian Wealth

Residential real estate plays a critical role in Australia’s financial ecosystem. The housing market reached a record valuation of $10.3 trillion, with a staggering 56.7% of total household wealth locked in bricks and mortar. This steady ascent, achieved month after month, indicates resilience in the face of rising interest rates.

Despite the impressive total value, homeowners in Australia only owe $2.2 trillion on their properties, resulting in a comfortable 22% Loan-to-Value (LTV) ratio. This balance between property worth and debt incurred suggests financial breathing room for many homeowners.

Continued Growth in Dwelling Values

The combined capital city dwelling market and the regional dwelling market saw a 1.5% rise in the December quarter, reflecting the market’s resilience in the face of rising interest rates.

While the growth trajectory for housing values in the combined capitals has slowed since late May, it has remained relatively steady through January 10th.

This positive trend is driven by a persistent shortage of available housing supply colliding with rising demand.

Regional markets are experiencing a similar upward trend, with their 1.5% quarterly growth mirroring the national average. This suggests a broader strength in the housing market, extending beyond the major metropolitan centres.

Home values across the country increased 8.1% in the 2023 calendar year, marking a significant turnaround from the -4.9% fall in 2022. However, this growth falls short of the 24.5% surge witnessed in 2021.

Fragmented Capital City Markets

The Australian housing market exhibits significant fragmentation, with capital cities outpacing their regional counterparts in terms of price increases.

While regional markets are also experiencing positive growth, mirroring the national average with a 1.5% quarterly increase, some pockets remain sluggish.

The upper quartile of the market, which led the initial downturn, is now spearheading the upswing’s early stage. Astute investors should carefully research specific regions and property types to identify opportunities with strong potential.

Each State’s Performance

Across the cities, divergent performances are unfolding:

1. Perth: Soaring 15.2% over the year, Perth reaches record highs, fueled by strong economic tailwinds and limited housing supply. Investors seeking exposure to a dynamic market should keep Perth on their radar.

2. Brisbane: Matching Perth’s exuberance, Brisbane’s prices climbed 13.1% to record highs, underscoring its attractiveness as a growing economic hub. Consider focusing on areas with robust infrastructure and job markets.

3. Sydney: Despite an 11.1% annual increase, Sydney prices linger 2.1% below their peak. Cautious optimism may be warranted; target established suburbs with good long-term growth prospects.

4. Melbourne: Downward pressure persists in Melbourne, with prices down 0.3% in December and 4.1% off their March 2022 peak. Selectively target resilient pockets, focusing on affordability and infrastructure upgrades.

5. Hobart: The former darling, Hobart, faces an 11.2% correction from its March 2022 peak. A wait-and-see approach might be prudent, with careful analysis of local economic factors before considering entry.

6. Adelaide: The Adelaide market languished last year, offering potential value for long-term investors who can ride out potential short-term volatility.

7. Darwin: Darwin underperformed in the past year, but its resource-linked economy could rebound. Monitor closely for signs of recovery and infrastructure investments before committing.

Sales Volumes and Market Balance

CoreLogic estimates around 488,898 sales across the country in 2023, indicating continued activity in the market.

While the market seems to be finding its equilibrium, selling times ticked up in capital cities last quarter after consistently dropping earlier in the year.

Regional sales are taking a slower pace, but it is still significantly faster than the pre-COVID period.

As houses sold faster in 2023, the average amount sellers had to discount their prices dropped steadily. However, there has been a small increase in average price drops by sellers towards the end of 2023, suggesting a slight shift in market dynamics.

The Complex Picture of New Listings

New listings paint a complex picture for Australian property investors, revealing a market in transition.

In the second half of 2023, new listings closely matched the historical five-year average, suggesting a return to normalcy after a period of tight supply. This signifies increased market activity and potential opportunities for buyers.

Total listings across the country are slowly rising, driven by the second-half influx, even though they remain slightly below the historical average. This could indicate a gradual build-up of available properties in the coming months.

December saw a slight drop in new listings, a seasonal pattern likely to continue in the short term.

However, many of these new listings may not be the “A-grade” or investment-worthy properties investors crave. Quality property owners remain cautious, keeping their prized assets off the market, potentially limiting options for discerning buyers.

Auction Clearance Rates and Housing Rental Market

Auction clearance rates in major cities dipped from November’s peak, signaling a potential shift in the housing market cycle. After a strong run, auction success rates cooled down towards the end of 2023, suggesting a return to normalcy after a hot market.

The Australian rental market continues to be a hot topic, with rising costs and headlines screaming “crisis.”

Rent values across the country climbed another 0.6% in December, reflecting an 8.3% annual increase. Additionally, the slight slowdown in capital gains growth, coupled with the rent uptick, has pushed gross rental yields marginally higher in recent months.

Dwelling Approvals and Housing Credit

Dwelling approvals remain significantly below historical averages, indicating that construction activity continues to lag behind pre-pandemic levels.

The value of new housing loans approved in November saw a modest 1.0% increase, suggesting a potential cooling down of the loan frenzy seen earlier in the year.

First-home buyers are leading the charge, with their loan approvals jumping 2.8% and their share of total owner-occupier loans reaching 29.4%, well above the historical average.

Tips for Success in the Australian Property Market

In navigating the evolving property market, consider the following tips for success:

1. Conduct thorough research on specific regions and property types to identify opportunities with strong potential.

2. Focus on areas with robust infrastructure and job markets for long-term growth prospects.

3. Monitor local economic factors and infrastructure investments before committing to certain markets.

4. Take advantage of the increased market activity and potential opportunities for buyers.

5. Be cautious of new listings that may not meet investment criteria due to cautious property owners.

6. Consider the rental market dynamics and potential rental yields when making investment decisions.

7. Stay informed about the fluctuating auction clearance rates and housing rental market conditions.

8. Stay updated on dwelling approvals and housing credit trends to gauge construction activity levels.

9. Pay attention to the preferences and trends of first-home buyers, who are currently leading the market.

10. Seek professional advice and guidance to make informed decisions in the Australian property market.

In summary, the Australian property market showcased resilience and growth in 2023, defying expectations in the face of rising interest rates. Factors such as a persistent housing shortage, strong underlying fundamentals, and potential stabilisation of interest rates and inflation contributed to this resilience. However, the market remains fragmented, with different performances across capital cities and regions. Sales volumes are trending higher, and the market is moving towards balance. New listings and auction clearance rates present a complex picture, while the rental market experiences upward momentum. Dwelling approvals and housing credit indicate ongoing construction activity and first-home buyers’ influence. To succeed in the Australian property market, thorough research, monitoring of market conditions, and professional guidance are essential.