Australian property outlook for 2023 and 2024

While US real estate agents are bracing for bad news in the spring sales period, in Australia, we feel that our property market is simply returning to more normal activity. Even Sydney, which saw the highest property value falls from May 2022, is starting to see property prices return to a growth phase, small as it is.

While interest rates continue to rise in Australia, we expect they will top out after another two rate hikes. Home buyers and mortgage holders will adjust their discretionary spending to allow for higher repayments in the short term.

Importantly, although we have experienced what might be termed a housing bubble over the past couple of years, we believe that the property market is safe from a catastrophic crash. It is accepted wisdom that property downturns are shorter than upturns; most last a maximum of 18 months, and, in any case, what we’re seeing is the market self-correcting after unsustainable high property prices.

However, our own local research might not be enough to convince you so we rounded up the views of some of Australia’s property economists for their predictions for the real estate market in 2023 and 2024.

Property forecast

While we’d like to be the oracle for house prices, property experts show a variety of ranges in what they believe will happen with property prices this year and into next year. However, the new kid on the block is the so-called ‘fixed rate cliff’.

What is the fixed rate cliff?

Many homeowners locked in a fixed low rate of interest that, thus far, has protected them from interest rate rises. When they have to revert to a variable rate, they will be in for higher mortgage payments. However, provided they aren’t over-leveraged, they can begin to adjust now rather than waiting for the axe to fall. Also, many mortgage holders were overpaying while interest rates were low, providing a buffer to insulate themselves from interest rate shock.

What economists are predicting

In the property market over 2020, 2021 and early 2022, we saw a once-in-a-generation growth. That level of growth could not be expected to continue. However, while fearmongers are talking up the fall, we must realise that Australian property prices rose by around 26% between March 2020 and April 2022 but have fallen by only around 8.6%. But what do the experts say?

Finder.com.au

Finder gathers information from banks and economists to help property buyers and sellers understand what is happening in the market. In February, they quoted Westpac data that predicted that property prices would fall 7% in 2023 and a further 5% in 2024. However, the Finder Property Investment Index still predicts growth in many areas. While growth may not translate into much higher prices, there is good reason for optimism.

HSBC

The HSBC bank is reporting they believe inflation has peaked in Australia from 7.7% in the 2022 December quarter and that we will end 2023 at a rate of about 3.5%, which could be an acceptable level for the Reserve Bank of Australia (RBA).

Westpac

Westpac bank tends to err on the side of caution. As of 3 March 2023, they put their official cash rate at a peak of 4.1 per cent, indicating they believe we will see more interest rate rises this year. Those higher interest rates will affect affordability and reduce the buyer pool. Westpac predicts Melbourne will experience the largest property price falls of around 20%, Sydney and Hobart down 7-8% and Brisbane and Adelaide down 6%.

CommBank

The Commonwealth Bank had been slightly more optimistic, predicting a property price decline of just 8% in 2023. Economists have since revised their position, now predicting national price declines of around 15%. However, we need to remember that the declines come off the back of once-in-a-generation home prices. Westpac chief economist Bill Evans has concerns that continued interest rates could cause the economy to stagnate, and the RBA might act too late in ceasing interest rate hikes.

NAB

The National Australia Bank believes that we ‘passed through the eye of the storm’ in August 2022, and things can only improve from here on. They have seen the highest value declines in the premium detached home market, particularly in capital cities. Regional prices continue to hold up well. Head of market economics, Tapas Strickland, noted that on the back of the predicted peak-to-trough decline of 20%, household spending would be reduced as householders focused on mortgage payments. He does not expect to see many distressed home sales.

AMP

You may be familiar with AMP Capital chief economist Shane Oliver, whose pronouncements on property appear regularly in the media. Dr Oliver predicts that home prices will continue to fall before they bottom out in the September 2023 quarter. Interest rate hikes take a while to flow through before home affordability is affected. Oliver expects property values to decline to 15-20% off their peak in April 2022, meaning he expects at least a 9% fall in property prices in 2023.

SQM Research

SQM Research’s Louis Christopher is one of the more reliable predictors of house price changes. SQM’s property price index is an excellent tool for tracking movements. You can also check out their free charts for your postcode. As of January 2023, Christopher’s research indicated capital city house prices could rise by 3-7% or higher in 2023. However, this growth depends on the RBA keeping the cash rate under 4%, inflation falling to around 5%, and unemployment remaining at under 5%. And if the RBA cut the cash rate in 2023, we could see higher growth in ideal conditions. If the conditions aren’t met, we could see further declines or stagnation.

Opportunities in the current market 

Falling or at least stable prices offer great opportunities for investors and sellers alike. Sellers who wish to downsize and move to the regions or buy a smaller property will not lose when they’re selling and buying into similar markets. Investors who are fully aware of their cash position, equity and tax stance can take advantage of lower prices to expand their portfolios.

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