Franzen Tips #1152 :What Goes Down Must Go Up?

What Goes Down Must Go Up?

 

In amongst all the financial doom and gloom of high-interest rates and the high cost of living, our remarkable property market is now (already) looking at the light at the end of the tunnel. This week the Domain property group published an article titled “Houses to see new record-high prices in an upcoming financial year”, which incidentally starts next week. In the article, Domain has forecast a “well-established and steady recovery” for the Australian housing market, with select capital cities anticipated to fully recover from the 2022 downturn.

 

Dr Nicola Powell, Domain’s chief of research and economics, said “Following a financial year of elections, interest rate rises, and initial signs of a recovery, we know that people are closely watching what’s to come for the housing market,”

 

Using a combination of a wide range of economic factors, property statistics, and real-time behavioural data, Domain projects that house prices in Sydney, Adelaide, and Perth will soar to new record highs by the end of 2024. Other capitals such as Melbourne, Brisbane, Hobart and Canberra are also predicted to increase by varying amounts, between 0% to 5%.

 

According to Dr Powell, population pressures will lead the charge in factors driving housing demand and property prices higher over the next 12 months with nearly 130,000 extra dwellings required. “Australia has seen an exponential increase in temporary and permanent migration since the international border reopened in late 2021 to alleviate skills shortages. Of course, unlike natural population growth, those arriving from overseas aren’t already housed,” she explained.

 

This scenario could once again end up in another real estate “perfect storm” where governments are not able to create an environment to stimulate new dwellings coming available quickly enough, increased demand as mentioned above and also the huge increase in building materials which is sending many building companies into liquidation as they have been committed to fixing price contracts that are now way over budget.

 

One of the big unknowns is just how much further interest rate rises and “affordability” will (or will not) temper the increases in prices. The old “supply and demand” metric doesn't have an “affordability” component. As always, time will tell, but when you throw in the severe lack of rental properties, at the end of the day people still have to live somewhere and they may have no choice but to buy into the market.