Residz Team 3 min read
The Australian real estate market has seen a surprising turnaround in recent months, with home prices stabilising and showing signs of recovery.
According to a Reuters poll of housing analysts, the outlook for the market has significantly improved, with average home prices expected to stagnate this year.
It doesn’t sound much, but this is a considerable turn-for-the-better compared to earlier predictions of a near double-digit fall.
While this indicates positive momentum for Aussie real estate, there are still challenges that need to be addressed to ensure sustained growth - and affordability for prospective home buyers.
Market Rebound and Factors Driving the Recovery
After a period of decline, Australian home prices have risen for two consecutive months, signalling a bottoming out of the property market.
This rebound can be attributed, in part, to the expectation that the Reserve Bank of Australia (RBA) has largely concluded its policy tightening measures. This perception has enticed cash-rich home buyers to resume their search for properties.
The Reuters poll conducted in May 2023 revealed a revised forecast of average home prices remaining stable throughout this calendar year, with a projected increase of 4.5% in 2024.
As stated earlier, these figures represent a significant improvement from the earlier predictions of a 9% fall and indicate growing confidence in the market's recovery.
Differing Views Among Local Banks
While the overall sentiment is optimistic, Reuters reports that major local banks have differing views on the market outlook. ANZ and Westpac forecast no growth in home prices for the current year. On the other hand, CBA expects a 3.0% rise, while NAB predicts a 4.0% decline.
These varying perspectives highlight the ongoing uncertainties surrounding the market and the need for careful analysis.
Factors Contributing to the Market's Recovery
ANZ senior economist Adelaide Timbrell, who told Reuters “The recent upturn has come as a surprise to us..”, points to strong household income growth and substantial savings buffers as factors that have provided a cushion against the fall in house prices.
She told Reuters the resilience of these factors may be offering more support than originally anticipated, contributing to the improved market conditions.
Revised Forecasts and Affordability Concerns
Analysts participating in the Reuters poll revised their peak-to-trough fall forecast to a median of just under 10%, a notable improvement from the earlier projection of a 16% decline.
However, the issue of affordability remains a significant concern for first-time home buyers. Despite the decline in prices from their peak, housing affordability continues to be a challenge.
Shane Oliver, chief economist at AMP, highlights that it now takes over 10 years for someone on average full-time earnings to save for a deposit, compared to five years three decades ago.
Impact of Immigration and Lack of Stock
Meanwhile, the Australian Financial Review is reporting that the surge in immigration since the beginning of the year has contributed to the increased demand for dwellings in Australia.
This surge is primarily reflected in rising rents, with RBA governor Philip Lowe expecting rent growth to reach 10% by year-end.
The AFR says spillover effect of this demand is also being observed in house prices, as renters seek to transition into homeownership.
However, the market is hindered by a lack of stock, it says, with a significant decrease in the flow of fresh listings. It cites CoreLogic, which reports that the supply of new properties is 13.1% below the average for capital cities and 18% below the five-year average in regional areas.
This limited supply further exacerbates affordability concerns and contributes to the dominance of higher-priced properties in more expensive suburbs.
Challenges in the Construction Sector
The AFR also points to Australia's construction sector currently facing significant challenges, with building approvals at their lowest point since June 2021, and home building activity at a seven-year low.
The weak supply of new dwellings, coupled with the surge in demand driven by immigration, further compounds the existing affordability issues, says the AFR. The construction sector's struggles also reflect the impact of inflation and rising interest rates, it says.
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