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The property market outlook for 2024

Profile photo of Pete Wargent

A year ago there was a lot of concern about the threat of rising interest rates leading to a flood of mortgage arrears and forced sales

It hasn’t really played out that way, at least at the macro level

Over the past decade, the problem child states were Western Australia (resources downturn) and Queensland (flooding), but both of these states are booming and mortgage arrears are actually falling

Some heavily geared homeowners in New South Wales and Victoria have fallen into arrears, but overall with about two-thirds of the ultra-low fixed rate mortgages having reset, 30-plus day mortgage arrears remain very low at under 1 per cent.

Arrears are still sitting at relatively low levels. Source: S&P Global

Arrears have also risen a little in some regional markets, where prices are now off their pandemic highs. 

The skills shortage was largely addressed in 2023, with enormously high population growth over more than 600,000 per annum, a rate of growth which has continued and taken the resident Aussie population to above 27 million early in 2024. 

Australia's population has grown rapidly since international borders reopened. Source: ABS

At the same time, higher mortgage rates and tight lending conditions have pushed dwelling starts down to a quarterly level of just 37,000, the lowest in over a decade.

The rate of new builds has fallen back to levels not seen in more than ten years. Source: ABS

Although the construction pipeline remains large, it is shrinking as developer insolvencies have surged to decade highs.

Construction is not keeping pace with population growth, with homebuilders competing for materials and trade skills against a huge public infrastructure pipeline. 

Rental vacancy rates remain around record lows.

With rents still rising we are seeing more parental assistance to help first homebuyers into the market. 

It’s one of the ways in which intergenerational wealth is being passed down, particularly in the capital cities. 

Mortgage market developments

Inflation is trending in the right direction now, and the Aussie workforce is looking forward to the Stage 3 tax cuts from July. 

Higher income earners will see a tax cut of around $4,500, only around half of what they were expecting from the previous government’s legislation.

For two-income households, there will be something of a boost to net incomes from the second half of 2024. 

The incoming Stage 3 tax cuts will be introduced at the beginning of the new financial year. Source: ABS

Inflation is trending in the right direction globally now, despite recent conflicts, and market pricing for interest rates has evolved significantly over the past three months.

The outlook for interest rates is looking more optimistic as inflation continues to temper. Source: Bloomberg, CBA, Macrobond

If we were to see lower interest rates combined with the tax cuts in the second half of 2024, this would put some sizzle into the housing market sausage.

For the time being, some markets are firing – most notably Western Australia, and units and townhouses in Brisbane – while others are seeing a more lukewarm start to 2024. 

But looking ahead to later in 2024, borrowers will gradually become more confident once they see interest rates easing, rather than the hawkish environment that prevailed throughout 2023.

 

Pete Wargent is a co-founder of Brisbane buyer's agency AllenWargent, six-times published author of books like Get a Financial Grip: A Simple Plan for Financial Freedom, co-host of the Australian Property Podcast, and a regular expert commentator in the fields of finance and property.