Riding the wave of 2023
Riding the wave of 2023
Why the property market surprised most this year
In 2023, Australia's housing market defied expectations, navigating a challenging landscape. It was shaped by a mix of surprising factors—such as a shortage of homes, rising interest rates, rapid population growth, challenges in construction, and an incredibly tight rental market. It surged to unforeseen heights, surprising experts, and showcasing remarkable resilience.
Surge in Housing Values and Interest Rates
Following a brief dip between May 2022 and January 2023, national home values rebounded vigorously. A substantial 7.0% increase in the year to November brought the median national home value to an impressive $753,942 across all capital city dwellings, defying projections.
Sydney HOUSES median values for the same period hit $1,397,366 (up 11.50%), while Sydney UNITS achieved a median value of $836,220 (up 7.1%).
While looking at median property values alone can’t be taken as absolute gospel, it’s still fun and exciting nonetheless and a good way to close out the year!
The strongest home value annual growth rate to the end of November was concentrated in the capital city markets, with the largest uplifts in Perth (13.5%), Brisbane (10.7%) and Sydney (10.2%).
Over 18 months, 13 consecutive rate hikes raised the cash rate from 0.1% to 4.35%, with five (125 basis points) of these rate increases occurring over the course of 2023. While these shifts bolstered savings and deposit rates for Australians holding cash invested, they significantly affected borrowing capacity and mortgage affordability for those seeking or holding debt.
Transitioning from low fixed-rate to higher variable-rate loans was a common theme in 2023 and this posed challenges for existing mortgage holders. Despite concerns about potential rises in mortgage arrears, most borrowers managed to shift their household budgets to accommodate although household savings took a hit as a result over the same period as Australians did what was necessary to weather the storm.
Household saving ratio falls to 1.10%, down from 2.80%
** Lowest level since December 2007 **
Less Transactions and the Overseas Migration Influence
The market saw fewer transactions despite climbing housing values. Ongoing pressures in construction limited new housing completions, which remains an ongoing hurdle to overcome, albeit there have been early signs of a flattening to costs across the construction segment expected going into 2024. The influx of net overseas migration, driven by COVID-related border closures, significantly impacted the rental market, elevating demand. Net overseas migration to Australia reached a record 454,000 by March 2023, significantly influencing housing metrics, especially in rental markets.
The latter half of 2023 saw a surge in new listings, but housing prices continued their upward trajectory, albeit at a slower pace. Advertised stock levels remained lower than the previous five-year average, contributing to continued price pressure.
Major banks 2024 interest rate forecasts
The good news is that the pace of global inflation clearly began decelerating around mid-2023 and many expect further deceleration in 2024.
When interest rates do start to come down, economists are convinced the decline will be gradual and nowhere close to the lows seen prior to May 2022.
Ultimately, there is light at the end of the tunnel as we close out 2023 with one thing common theme across each of the major bank predictions, being that we are at the peak of the rate cycle and the path forward has interest rate cuts in its sights.
At the time of writing, NAB is the only Big Bank predicting interest rates will hit 4.60% in February 2024, then holding firm for most of the year. NAB is predicting rate cuts to not start until November 2024 with gradual cuts to follow through 2025, eventually arriving at 3.10% by March 2026.
Both Commonwealth Bank and Westpac are forecasting the cash rate to remain on hold at 4.35% throughout most of 2024, but maintain if a further rate increase was to take place, then it would likely occur in the first quarter of 2024, before commencing a rate easing cycle from September 2024, eventually closing the 2024 year with a cash rate of 3.60%, followed by a further 75 basis points of easing, taking the cash rate to 2.85% by the end of 2025. CBA are forecasting dwelling prices to rise by a further 5 per cent in 2024.
ANZ is expecting rates to remain largely stable at the current 4.35% through 2024, followed by a single 25 basis points rate cut in the fourth quarter of 2024, with further easing then taking place at the start of 2025, expected to take the cash rate to 3.35% by June. ANZ bank is also forecasting a 6% increase to property prices in 2024.
Closing Out 2023
The unexpected resilience of the housing market in 2023 underscores its adaptability.
Where uncertainties persist, it requires cautious anticipation and strategic adaptation to economic shifts and changing consumer behaviours.
The road ahead demands nimbleness and adaptability from all those involved to navigate market trends and the domestic challenges ahead.
Making sure you surround yourself with the right team is essential to put yourself in the best possible position for success.
Give us a call anytime to talk about your future and let us build a strategy for you, as we look to give your dreams wings for many years to come.
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