2024 continues the post-pandemic trend of multiple competing influences trying to shift both national and local property markets in various, and sometimes opposite, directions.
We are seeing growth, albeit at more pedestrian levels than during the pandemic, across most major markets except for Perth which has continued its charge from the second half of last year.
As we look forward, 2024’s inflation numbers, interest rates and unemployment figures – along with high immigration levels – appear to be the key metrics to watch as they could sway current demand imbalance and/or purchaser confidence one way or another.
Throughout 2023 the million-dollar question was, “When will the RBA finish their rate lifting efforts?” It’s interesting to now see the question shift to, “When will they start cutting rates?” If the last vestiges of high inflation remain sticky, how much pain in other areas of the economy – such as a sharp rise in unemployment or risk of a recession – will the RBA tolerate until its hand is forced?
Individual household pain is clear with cost-of-living pressure and the per capita recession discussion we’ve seen in recent months. An increase in unemployment of late (with the potential for further increases in this measure) is only compounding the problem.
The sharp rise in our immigration numbers throughout 2023 continues to support our economy, but it adds upward pressure on housing demand. National and state migration levels this year will be a key influence, in particular net migration patterns on a jurisdiction-by-jurisdiction basis.
For investors these factors present short-term opportunities along with several potential downsides to keep an eye on.
Strong immigration has supported record rental growth and low vacancy rates. Subsets of immigration can have a marked effect on particular locations. For example, if a group such as overseas students eventually left our shores and weren’t substantially replaced by new arrivals, there’d be less housing demand in the inner-cities and those suburbs surrounding universities.
Some cashed-up investors, who are less reliant on borrowing funds and haven’t been impacted by rising interest rates, are well positioned to take advantage of opportunities in today’s market. These buyers certainly aren’t having any trouble securing tenants in most markets. Should interest rates start to drop towards the end of the year, a wider buyer pool with increased buying power will add to the competition, including some purchasers who were previously forced to rent. For those already holding investment properties, continued limited supply could create a windfall as the cost of servicing loans reduces without an accompanying reduction in achievable rent.
With a sluggish building sector still recovering from cost increases and margin squeezes both during and post pandemic, the ability to bring new stock at required levels appears limited in the short term at least. Without a mass net migration exodus or influx in new housing, the current imbalance between demand and supply looks set to continue.
Ben Esau
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