The Property Market Outlook August 2023 Report from PropTrack indicates that national property prices are poised to rise, with estimates ranging from 2 to 5 per cent by the end of the year.

This analysis is based on consumer behaviour data drawn from the 12.1 million Australians who visit realestate.com.au monthly. The property market experienced a notable upswing in the first half of 2023, with a 2.3 per cent increase in prices.

Cameron Kusher, the Director of Economic Research at PropTrack, highlighted the property market’s positive trajectory this year, marked by six consecutive months of price growth. This resilience is particularly impressive in the face of rising interest rates and modest wage growth.

The report attributes the ongoing rise in property prices to a shortage of available properties for sale, which intensifies buyer competition and drives price appreciation. The report’s outlook is optimistic, with expectations of national property prices increasing by as much as 5 per cent by the close of 2023, especially in the larger capital cities.

Notably, CoreLogic recently reported a 0.7 per cent rise in the national average home price for the month of July.

According to a recent KPMG report, there are expectations of a significant upswing in both the housing and apartment markets in Australia. The report predicts a national increase in house prices by 4.9% over the next nine months, followed by a substantial surge of 9.4% in the year leading up to June 2025.

For apartments across the country, an average rise of 3.1% is expected by next June, followed by a 6% increase in the subsequent 12 months.

However, it’s important to note that these forecasts come with regional variations. Perth is anticipated to see the highest rise in house prices, reaching 8.4% in the remaining part of the financial year 2024. On the other hand, Hobart is projected to overtake other cities in the financial year 2025 with an impressive surge of 14.2%.

Hobart also leads the pack in terms of apartment prices, with projected increases of 8.7% and 10% over the next two years, followed by Sydney, Melbourne, and Adelaide.

The report delves into the various factors influencing property prices. These factors include a complex interplay of supply and demand dynamics, interest rates, migration patterns, lending conditions, and more.

Dr. Brendan Rynne, KPMG Chief Economist, emphasizes that despite higher interest rates, limited supply is likely to be the predominant factor impacting property prices in the short term. The scarcity of available land, falling approval levels, and slower construction activity are contributing to this. Factors like heavy migration, expected rate cuts in the next financial year, high rental costs pushing renters to consider buying, barriers to new home development, and renewed foreign investor demand are also expected to play a role in driving up property prices.

Mortgage Stress

Mortgage stress is a factor pushing in the opposite direction. First-time buyers now have to allocate around half of their earnings to mortgage payments, a significant increase from just three years ago. Approximately $350 billion of mortgages, covering 880,000 Australian households, are set to expire this year, with more expiring beyond. Some homeowners who previously locked in low rates may find it challenging to refinance at competitive rates.

In summary, the factors propelling property prices upward are expected to outweigh the restraining influences. Market dynamics vary across different cities, leading to considerable regional variations.

There is a significant regional price variation over the three years since the start of COVID-19. For example, Adelaide houses have outperformed the national average with a remarkable 40% price increase from June 2020 to June 2023. On the contrary, Sydney and Melbourne, which saw sharp rises during the pandemic, experienced declines of -1.3% and -1.4%, respectively, in house prices over the year leading up to June 2023.

Additionally, factors such as Home Builder stimulus, housing approvals, rising building material costs, migration patterns, and foreign investment are evolving from the pandemic’s peak but continue to shape the property market’s landscape.

The report also notes that rising rental costs can have a substantial role in driving up property prices, as more renters consider transitioning to home ownership.

Based on projections for new dwelling completions and population forecasts, annual rent growth is estimated to be 5.6% over the next two years, considerably higher than the long-term average of 3.1%. To bring rental costs back to normal levels, dwelling completions would need to be substantially higher than current forecasts or a considerable reduction in migration-induced population growth would be required, although this would come with short-term costs overriding long-term economic benefits.

Australia has the highest level of mortgage stress in the developed world. This is due to the significant proportion of income that Australians allocate to loan repayments. The report highlights concerns that further monetary tightening may be required to manage this situation, as borrowers’ debt repayment capacity diminishes and credit growth slows.