Australian Housing Market Predictions for Next Five Years

The Australian housing market is expected to experience significant growth over the next five years, according to a new property report by KPMG. The report analyzes the trends and factors that will influence house and apartment prices in Australia’s capital cities. Here are the key findings:

National House Price Predictions

• Over the next nine months, house prices are projected to rise by 4.9% nationally.
• From June 2024 to June 2025, there will be a surge of 9.4% in house prices.

National Apartment Price Predictions

• Apartment prices across the country will see an average rise of 3.1% by June next year.
• In the following 12 months, apartment prices are expected to increase by 6%.

Regional Differences in Price Growth

• Perth is predicted to have the highest house price growth in the rest of FY24, with an increase of 8.4%.
• However, Hobart is expected to overtake other cities in FY25 and experience a surge of 14.2% in house prices.
• Hobart also outperforms other capital cities in terms of unit price growth, with rises of 8.7% and 10% respectively over the next two years. Sydney, Melbourne, and Adelaide follow suit.

Factors Influencing Property Prices

The report highlights a range of push and pull factors that will impact property prices in Australia. While these factors may counter each other to some extent, limited supply and high demand are expected to ultimately outweigh other influences, including interest rates.

Dr. Brendan Rynne, KPMG Chief Economist, explains that despite high interest rates, constrained supply will dominate the factors affecting property prices in the short term. This will result in continued price gains in most markets during FY24. Additionally, house and unit prices will accelerate further in the next financial year due to limited dwelling supply caused by a scarcity of available land, falling levels of approvals, and slower or more costly construction activity.

Several factors are expected to push asset prices up in the coming years, including higher demand due to increased migration, anticipated rate cuts in FY25, potentially relaxed lending conditions, high rental costs prompting renters to consider buying, barriers to developers building new homes, and a resurgence in foreign investor demand. The report also notes the long-term demand for more space as remote work continues to be prevalent post-pandemic.

However, mortgage stress is identified as a factor that could restrain property prices. First-time buyers now need to allocate around half of their earnings to mortgage payments, which is a significant increase from a third just three years ago. A considerable number of mortgages are set to expire, and homeowners who previously locked in low rates might struggle to pay and refinance to a more competitive rate.

Regional Variations in Price Growth

The report emphasizes significant regional variations in property prices over the past three years since the start of the COVID-19 pandemic. Adelaide houses have outperformed the national average, with prices rising by 40% from June 2020 to June 2023. Conversely, Sydney and Melbourne experienced a decline of -1.3% and -1.4% respectively in house prices over the year to June 2023, following sharp rises during the pandemic.

Changing Factors in the Housing Market

The report also highlights changes in factors influencing the housing market since the height of the pandemic. The generous Home Builder stimulus led to a surge in housing approvals and subsequent completions. However, shrinking approvals and rising building material costs are now constraining housing supply. Migration, which declined during COVID-19, is projected to increase by over 400,000 this year, and foreign investment is steadily recovering, albeit still lower than pre-pandemic levels. This recovery is particularly evident with the relaxation of travel restrictions and the reopening of China’s borders.

Rising rental costs can play a significant role in pushing up dwelling prices as more renters aspire to homeownership. The report estimates that annual rent growth will be 5.6% over the next two years, which is 2.5% higher than the long-term average. To bring rental costs back to normal levels, dwelling completions would need to be significantly higher than current forecasts, or population growth from migration would have to decrease to lower levels. However, such measures would come with short-term costs that may outweigh long-term economic benefits.

In conclusion, the Australian housing market is expected to experience overall growth in the coming years, with varying regional variations. Limited supply, high demand, and a range of influencing factors are projected to drive up property prices, although mortgage stress remains a potential restraint. It is crucial for potential buyers and investors to consider these trends and regional variations when navigating the Australian housing market.

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The article above provides insights into the predictions for the Australian housing market over the next five years. The key findings from KPMG’s property report indicate that house prices will rise nationally by 4.9% over the next nine months and then surge by 9.4% in the year to June 2025. Meanwhile, apartment prices are expected to see an average rise of 3.1% by next June, followed by a 6% increase in the next 12 months.

The report also highlights important regional differences in price growth. Perth is projected to experience the highest increase in house prices in the rest of FY24, followed by Hobart, which is expected to overtake other cities in FY25 and see a surge of 14.2% in house prices. Hobart also outperforms other capital cities in terms of unit price growth.

Various factors are influencing property prices, including limited supply and high demand, which outweigh interest rates. Other factors such as migration, anticipated rate cuts, relaxed lending conditions, high rental costs, barriers to new construction, and foreign investor demand are expected to contribute to price increases. However, mortgage stress is a factor that could restrain property prices.

The report also highlights significant regional variations in price growth over the past three years. Adelaide houses have outperformed the national average, while Sydney and Melbourne experienced declines in house prices.

Changes in factors influencing the housing market include shrinking approvals, rising building material costs, increased migration, and recovering foreign investment. Rising rental costs also play a role in driving up dwelling prices.

Overall, the Australian housing market is projected to experience growth, but potential buyers and investors should consider regional variations and factors influencing the market when making decisions.