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Navigating an Australian Property Market Where Prices Keep Soaring
106 Plays3 months ago
Welcome to this week's Finance in 5, where we delve into the latest predictions and trends shaking up the Australian housing market. Big news: house prices in Perth are projected to surpass the $1 million median mark by 2027, and Sydney's median house price is expected to soar beyond $2 million. With a sustained housing shortage kicking into another gear, what does this mean for first home buyers?
In today's episode, we’ll explore expert predictions for house prices over the next 12 months and analyze the rental market, where some relief might finally be on the horizon for Sydney and Melbourne tenants. We’ll also navigate the trifecta of inflation, interest rates, and your mortgage, examining how these factors are reshaping the Australian housing landscape.
Join us as we tackle these pressing questions:
- What will happen with property prices?
- Are there more interest rate hikes on the horizon?
- How can first home buyers navigate this challenging market?
We’ll discuss CoreLogic and CPI index data, the Reserve Bank’s inflation control strategies, and the impact of low supply and high demand on property prices. We’ll also cover the latest insights on rental market trends and the potential for new home construction to ease the housing shortage.
Don’t miss this episode if you want to stay informed and prepared in this ever-evolving market. Like and subscribe for more updates, and visit HunterGalloway.com.au for personalized assistance and free assessments to help you on your home-buying journey.
Tune in now to navigate the property markets with confidence!
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Transcript
Will Perth House Prices Reach $1 Million by 2027?
00:00:00
Speaker
Hey guys, welcome to this week's Finance Center 5. With the latest predictions, house prices in Perth are expected to pass the $1 million median mark by 2027. Sydney's median house price is expected to soar over $2 million. So as a sustained housing shortage, it's going to kick up another gear and another phase of growth can first homebuy a survive in a market where prices keep soaring. We're going to cover that in today's episode and go through what some experts are predicting for house prices over the next 12 months.
What Factors Influence Australian Housing?
00:00:27
Speaker
Plus, we'll take a closer look at the rental market where relief might finally be on the horizon for Sydney and Melbourne tenants and from the trifecta of inflation, interest rates and your mortgage to the changing face of Australian housing will leave no stone unturned in our quest to help you navigate the property market's new norm.
00:00:45
Speaker
Welcome to the Buying Your First Home Podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home. From financial prep to finding the right neighbourhood, we're here to ensure that you've got all the knowledge at your fingertips.
Skepticism About Continuous Property Price Rises
00:01:02
Speaker
So let's take the first step towards unlocking the door to your new home.
00:01:11
Speaker
Simon, let's kick things off by discussing the big question in everyone's mind. What's going to happen with the property market? Like, are these predictions right? That just seems crazy that prices could keep going. And I guess, coupled with that, there's been a couple of predictions saying, well, there could be another rate rise on the horizon. It's kind of come from less field. And even the Reserve Bank themselves are saying, well, we're trading a narrow path here. Really interesting point of time at the moment, Jayden. You know, there's a couple of different perspectives. So from CoreLogic,
00:01:39
Speaker
And the latest CPI index data, there's a 4.4 inflation rate from a, which is raising some concerns because that's much higher than people would like to see. You know, the RBA wants to keep it around that 2% mark. People are worried. They're thinking, are they going to raise the interest rate to kind of that inflation? And if that does happen.
00:01:58
Speaker
going to increase borrowing costs, it's going to make it harder to secure a mortgage and it's going to be more difficult to enter the housing market. It's interesting that the Reserve Bank's primary mandate really is about controlling inflation and they have to look at how this is affecting the wider economy because they know if they push the rates too high, it could tip Australia into recession, jobs could be lost and it could create bigger issues. So they are really blocking quite a tightrope there. The weird thing in Australia at the moment and for the past couple of years is that
00:02:26
Speaker
Usually, when interest rates go up, home values start to stabilize or even go down. We haven't seen that
Interest Rates and Property Price Pressures
00:02:32
Speaker
here. There's a lot of other factors at play here that are causing this upwards pressure in terms of price in the market, low supply relative demand, strong population growth, a lot of migration. Also, these variable rate mortgages, which are allowing people to anticipate and think ahead and think, well, the rates are going to go down in the future, so we'll get the variable rate mortgage. We'll ride the wave as it goes down.
00:02:55
Speaker
I think it's also structurally, Australia is different to some of those markets overseas. Like you said, as far as the home loan rates in America, you can get a 20-30 year interest rate, your interest rates locked. The short-term cash rate doesn't affect you as much. In Australia, it has started to slow down growth, not as much as what the Reserve Bank wants to see. But seeing these sort of delayed effects is going to be interesting. And I guess even in Australia, the other thing we have here compared to say New Zealand is we've got stamp duties. So it's expensive to move around homes. And that's been one of the biggest issues. I saw a report today
00:03:22
Speaker
talking about the supply availability of properties or homes and sale just in Queensland specifically. But at the moment, there's about 50% less homes for sale than there was on the five year average. So usually there's almost 12 months worth of stock and sales properties that are on the market. Like in Brisbane, there's about 20,000 listings, which
00:03:39
Speaker
is only the equivalent of four or five months worth of sales. We've got half as many properties to sell at the moment, and this is a national issue, this isn't just Queensland, buyers still around, so that's really supporting putting a bit of floor under that property market. In property prices like most commodities, it's all about supply and demand. If you've got not enough supply and plenty of demand, then that's going to drive the prices up. That's just been the case for a long time in Australia and certainly in some of these property hotspots.
Diverse Economist Opinions on Interest Rates
00:04:03
Speaker
like Brisbane, and now there is a shift towards cheaper markets like Perth and Adelaide. People are looking at different cities, which are possibly a cheaper entry point, and then the shift in demand is also moving across there, like a wave that's kind of rolling across the country. Very interesting. Well, on to our next point. So I guess further we can't debate on interest rates. Some of the different economists' opinions are quite divided. So there's been Warren Hogan, one of the minor economists out there that have tried to buck the trends that we need to increase rates through four times.
00:04:31
Speaker
think a little bit to get headlines like the Reserve Bank, even the Treasurer has said that's improbable in the current setting. Maybe they need to increase rates once, possibly, depending on inflation settings, but several times looks unlikely at the moment. But the panel of 29 forecasters actually expect the Reserve Bank to start cutting interest rates potentially by the end of next year. So a total reduction of 0.65 basis points by the end of 2025. So that could see the cash rate coming down from its current
00:04:58
Speaker
point at 4.35% to 3.75%. And even the Reserve Bank said like a neutral setting is probably around three and a half, 3.75% cash rate. So potentially there is scope for reprieve there, but I guess how soon that happens is another question. The interesting thing here is this panel of 29 forecasters, which were assembled by the conversation. So they asked a bunch of different economists, where is the rate going to go and when's the first cut going to be? There is a lot of variability here. Most people are saying that it's going to go down
00:05:28
Speaker
and probably go down by the end of this year, early next year. But there are others who are saying it might not go down at all and we'll see the first rate cut as late as July 2025 or even an increase of half a percent.
Australian House Prices: New Highs and Stabilization
00:05:41
Speaker
So the interesting thing here is like
00:05:43
Speaker
it's always hard to predict what's going to happen in the market. And even if you are an expert economist, you know, people don't really tend to agree. So the general gist here is that most people think it's going to go down, but we don't know for sure. That's one thing that's important to take away from this. Yeah, I had a lunch earlier in the week. That was the deputy assistant treasurer. So it was like an open table sort of thing. And someone asked him about interest rates and prediction. He's obviously saying like, Oh, currently,
00:06:09
Speaker
Give the government view, it depends what happens, but my personal opinion is potentially the Reserve Bank will keep things on hold with those inflationary figures. It's a bit too soon to see how that's happening and how it's going to affect the job market. People are financially, I guess, stretched in a sense, like households are having to put more money towards electricity, cost of living, that sort of thing.
00:06:26
Speaker
And he did also say, if the Reserve Bank were to put up interest rates, it would be a potential pathway to recession, which could really impact the economy at a larger scale. So they're saying, well, potentially they're going to trade cautiously, wait and see what happens. But yeah, like you said, Simon, it's a hard one to predict. Definitely one thing he said that was interesting, though, is there's going to be always changes and now's probably not the time to be looking at fixing your interest rate. And it's definitely a trend we've seen in our business. Obviously, we do mortgage-broking, but a lot of people are
00:06:53
Speaker
going towards variable rates because of what you said before Simon a lot of uncertainty in the market but it does look more likely in the sort of short to medium term that there'll be some relief there with the interest rates. Absolutely. So we have heard from the experts about where interest rates might be going but what does this all mean like for the average home buyer?
Stage 3 Tax Cuts and Borrowing Capacity
00:07:12
Speaker
Let's have a look at where the property price data is going and maybe there is some hope for people who are looking to enter the market like Australia's
00:07:20
Speaker
median home value hit a new high in june which if you're looking to buy a place sounds pretty scary but prices grew at the slowest monthly pace in eighteen months so just point one eight percent nationally while the prices are higher than ever the rate of growth is slowing so this is kind of an interesting
00:07:36
Speaker
point to be looking at buying. Markets go in cycles. Often a market, when it reaches a peak, it'll start to sort of slow down and you can sometimes even see a bit of stabilization or even a drop in prices. So it's a good time to be looking to buy because there's a bit of stabilization here in the market, not so much this runaway massive growth that we're seeing.
00:07:56
Speaker
Yeah, so the Stage 3 tax cuts have just come into effect and that's actually increased your borrowing capacity because it's increased your net income. So a home buyer earning $100,000 a year will get about a $2,179 tax cut and that's going to boost your borrowing capacity by about $25,000.
00:08:11
Speaker
if you're earning 150,000, it'll increase your capacity by 37. So the good news is, like Simon said, the growth is falling in certain segments of the market, depending on where you are. It's worth looking at some of the core logic indices just to work out what's happening in your local area because every market's different.
00:08:27
Speaker
every city that's within the suburbs is different, but that's slowing down and potentially your borrowing capacity is going to increase. That'll help you catch up with the market. It'll give you some extra options with your borrowing capacity as well. Like prices are expected to keep rising in the coming year and no one is predicting any kind of fall off in the market, but a slower pace of growth. So the PropTrax latest property market outlook report has forecast that prices will increase between 2% and 5% over the 24-25% national year.
00:08:58
Speaker
financial year nationally, but does vary her city, as we've talked about. So Perth prices are probably going to rise the fastest, followed by Adelaide. So both of those are around the 8% mark or so. Brisbane, Sydney and Melbourne, they're going to see slightly smaller increases of 3 to 6%. And Canberra, Hobart and Darwin are going to be even slower than that. So in Hobart and Darwin in particular, there's probably not going to be a huge amount of upwards movement in the market. It's always worth looking at what's happening in your local
00:09:27
Speaker
area even in your suburb versus your city as
Are Rental Prices Stabilizing in Major Cities?
00:09:30
Speaker
a whole. See how prices are going and you might find that there is some good opportunities to get in now and make the most of this kind of slower growth and to catch up a little bit.
00:09:42
Speaker
in terms of being able to save your deposit as well. Absolutely. Now switching gears, looking at rising property prices are a fair concern for a lot of buyers. There are some good news. If you're renting, you're still trying to save up a deposit, specifically if you're in Sydney or Melbourne. So let's find out why rents are actually potentially coming down in a couple of these cities.
00:10:00
Speaker
Yeah, so kind of some big news here. Domain's quarterly report for June has showed that house and unit rents across the combined capitals and in most cities, again, they're at record highs, which does sound worrying, but the pace of growth is easing as well. Sydney house rents actually flatlined from March, and that's the first time in one and a half years.
00:10:17
Speaker
some stabilization there. And Perth's house rents were unchanged for the first time in almost three years. Hobart house rents actually declined over the quarter. And in Melbourne, Perth and Hobart unit rents were steady and they fell in Canberra and Darwin. Actually, finally, a little bit of relief here for people who are renting or looking to rent. It's great news.
00:10:34
Speaker
Yeah, I think the slowdown is definitely going to help you more for that affordability. And I guess if rates go up, like as we've seen before that unfortunately it's passed on to renters, but hopefully there's some stability there. If you are renting, if you're trying to save your sort of savings plan mapped out over the next six, 12, 18 months, it's going to give you a bit more disposable income with the tax break, potentially help save up that deposit. But the slowdown in rental growth is surprising actually given some of the low vacancy rates. So we still haven't seen that supply. I haven't seen that vacancy rate.
00:11:03
Speaker
increase. That's the amount of units that are for lease that aren't filled a lot of places below 2%. So it suggests that the slowdown could be because of affordability barriers and budgets potentially right, Simon. Absolutely. So, you know, there's always a limit on how much people can afford to pay. I think in some of these markets and areas, that's kind of where we're reaching the tipping point with the rental market prices become unsustainable and you know, no one's going to be able to pay more than they can afford. Right. So I think that's kind of a big factor here about what's happening with
00:11:32
Speaker
the rental market. And interestingly, I guess it's just another example to show how the Australian property market in general just doesn't tend to follow the normal rules. Typically, ultra low vacancy rates means really high rental growth, and we're not seeing that.
Future Construction and Housing Approvals
00:11:49
Speaker
And high interest rates mean lower house prices. We're not seeing that either.
00:11:54
Speaker
The only thing to take away here is that you can't expect the property market to really act in a rational way. Or the way you want it to go. It's a bigger beast than that. So let's move on to the next section. The new home approvals rise to a sixth month high. As we covered, the housing market in Australia has some big challenges, one of them being supply and supply comes from construction. But the latest data on construction and housing approvals. So this is, I suppose,
00:12:18
Speaker
Approvals, I mean, maybe explain what that is, opposed to starts and what some of the data is showing. If you want to build a house, you have to get an approval, a permit to build it. And so what they're talking about here is with new housing approvals of people who have submitted for a permit to build and been approved to do so. It's a sign that people are planning on building in the future.
00:12:37
Speaker
Not all these approvals go ahead. So as you mentioned, there is the starts as well. That's when building actually does commence on a property. Interestingly, there was an increase in May, which was 14,175 new housing approvals, which is a 5.5% increase. And that's good news. You know, we need these houses to be built. Unfortunately, this is still below the monthly rate that we need to reach to hit that target of 1.2 million new homes per year, which is what the Australian government is aiming
High Building Costs and Luxury Focus
00:13:06
Speaker
for.
00:13:06
Speaker
Yeah, so the increase in approvals is obviously a positive sign because it means we don't lose more supply, help with the costs of buying a home, but the rate of new home construction just still isn't keeping up with that demand. So unfortunately, like it indicates that the housing shortage in Australia across the country could still persist making it.
00:13:24
Speaker
more challenging to find affordable properties and the second point to this is really sourcing materials and just the cost of building for labor and everything else has made a lot of projects although they're approved just unviable even in some of those inner city areas so the concertina effect of this is
00:13:40
Speaker
because it's harder for a developer to make an affordable housing product just because of the cost of materials. If you're building a million dollar house or an $800,000 house, it still costs you the same in concrete. It's usually just the finishes that's going to be different. So as a result of that, developers are prioritizing a lot of luxury projects as well. So there's stuff that's million in Cindy, several million dollars. But it means that a lot of first home buyers and people like us at the affordable end of the market aren't
00:14:06
Speaker
getting the right products that's got access to it so it's gonna make it harder for entry-level sort of homes in the current market and there's just some big changes there. Yeah which is pretty wild. I was reading about one particular developer so they were building a set of units and they had planned to build about 61 bedroom apartments and during the building process they actually scrapped all of those to focus on two and three bedroom apartments because they couldn't justify the pricing and they couldn't sell the one bedroom apartments for a price that was viable for them so they shifted towards the luxury so
00:14:36
Speaker
I guess the takeaway here is that, in general, if you are looking to buy or build a home as a first-home buyer, you really are probably getting more bang for you about looking at established homes in terms of being able to find an affordable place and being able to find something that works for you. These lower-end properties aren't really being built, so it's going to be harder to find them, which really means the opportunity there is to look at the properties that are existing. They're catering these new projects to the downsizers, people who maybe have a house and they're looking to
00:15:05
Speaker
change to something smaller as their kids have moved out of
Does Australia's Property Market Defy Norms?
00:15:08
Speaker
home. That leaves an opportunity for you to look and find those houses and buy one of those instead and buy something a little bigger, maybe a little more affordable as well. Absolutely. Well, going to the winter months, Simon, I don't know about you, but my house is freezing cold. So it's funny, like in Queensland, there's a lot of houses made out of timber, which is really great in summer because it keeps them cool, but not really planned that well for winter where you have to have, you know, I've got a heater at my feet to keep my toes warm.
00:15:33
Speaker
But I guess the recent calls that have highlighted some issues with poorly insulated houses, especially in winter in Brisbane. I've seen malls compared to Melbourne and Sydney and Tasmania. So there actually have been some changes in Victoria specifically. They've recently strengthened renters rights to
00:15:50
Speaker
improve thermal standards in rental properties across the state. From the 30th of October next year, landlords are going to need to meet minimum standards for insulation, draft proofing, hot water efficiency, cooling. Anybody who's rented a place that has not been well maintained, this is probably wonderful news to hear. There are positive development for people who are renting, and it means that they're going to be more efficient, more comfortable to live in, which is definitely good news.
00:16:16
Speaker
Amazing. Now to our last segment, ghost developments. This was a pretty weird one. So some tourist meccas that you found that don't go anywhere. What is this and how do I book them in?
00:16:28
Speaker
So I was just thinking this week, you know, we've been talking a lot about building recently and developers and how sometimes things just don't work out. And I thought, let's just take a break from the serious stuff for a little while and talk about some of these really interesting spots that Australia has. I've never heard of most of these. And back in when they were being built, they were supposed to be a big deal. The first one, which caught my attention,
00:16:49
Speaker
was the Christmas Island Casino and Resort. Christmas Island is not known for its gambling lifestyle currently, but in the 90s, it was the most profitable casino in the world, generating more than $5 billion a year.
00:17:04
Speaker
Yeah, it's insane. Apparently it had like 400 full-time staff. It tripled the island's population from 800 to 2,700 people, but yeah, closed in 1998 due to the Asian financial crisis. So just crazy. Imagine flying out there for a junket for a weekend. It's insane.
00:17:21
Speaker
Yeah. And I guess this is kind of, if we are going to sort of relate it to property, it shows you like, even if you're like saying, looking to invest and you're buying in a mining town, if you buy an investment property in a mining town that is relying on mining being profitable, if that changes, then suddenly you potentially have an empty house that no one wants to rent. Kind of just an interesting parallel here. And I mean, $5 billion a year in the 90s, just imagine how much money was going through that place.
00:17:44
Speaker
Pretty insane. And then another one that was interesting was the dismal swamp in Tasmania. So what is with that? Well, this was a popular tourist attraction for some reason. It's the largest sinkhole in the Southern hemisphere and it had a maze and boardwalks and sculptures and even 110 meters slide through the forest. So it was created by Forestry Tasmania and opened in 2004. And they were trying to get people to this
00:18:11
Speaker
to explore more of Tasmania, get to the remote corner of the state and see what it has to offer. I wonder if they probably should have called it something other than the dismal swamp though.
Investment Risks in Volatile Markets
00:18:21
Speaker
People to come and visit, it's not the most appealing name. More money on marketing. But yeah, I think to your points, and we'll include some of the explorers and other
00:18:29
Speaker
wacky ones here you know it's worth sort of thinking about when you're looking at buying property more if you're going down the investing path obviously if you're living somewhere it's sort of a potentially a different equation but if you're looking at investing i've been contacted by many people over the years that have found like the most amazing properties in long reach for 150 000 or you know stuff in moron bar it's a bit different now today but like over the last 10 years sort of after
00:18:51
Speaker
The drop in mining some of those one horse towns can be problematic when that industry leaves so it's worth looking at and zooming out when you look at these investments and getting feel from.
00:19:02
Speaker
So I'm wrapping it up. Obviously, we covered a lot today. We sort of went through the property market, what could happen over the next few years with some of the predictions there. I suppose it's easy also getting caught up in the media and all the negative news out there, but even around interest rates, if you zoom out and look at some of those Oxford economics data and some of the predictions, it's looking like it's not going to be a huge let up. As far as the property growth, it will slow. It's looking to be slowing in the next 12 months, but it
00:19:28
Speaker
appears it's going to keep existing. So if you're looking at getting the market to the numbers, see if it's possible. It could be possible to get in the market with less deposit than what you realize. On interest rates, Simon, what were your takeaways? So with interest rates, you know, it looks like the general consensus is that we are going to see some relief in the near future. The average estimate is minus 0.35, starting from March 2025, but it could happen sooner than that. And that's going to be great news for people who have got a mortgage or if you are looking
00:19:58
Speaker
buy it also help with your borrowing capacity so there is some hope there on the horizon with interest rates. On the rental side as well if you're still renting and saving a deposit for your home then
00:20:08
Speaker
It's also a bit of good news. It looks like there is some stabilization in the rental prices across many parts of the country. So it helps you to potentially put a bit more towards the deposit and move towards buying that first home. That's it. So if you need any help with finance, hit us up at huntergaloy.com.au where the home for home buyers across Australia and jump into our group. We've got a free group on Facebook. You can join and join the conversation. Until next time, we'll see you guys.