As 2023 draws to a close, we take this opportunity to reflect on the year that has passed while also setting our sights on the prospects and challenges of the upcoming year. Throughout 2023, the residential property market in Australia underwent diverse transformations. Most notably, many capital cities witnessed a recovery in property prices, primarily driven by population growth and a constriction in housing supply.
Numerous factors have shaped the market dynamics in 2023 and are set to exert a similar influence in 2024. These elements can be broadly classified into two categories: tailwinds, which propel the market forward, and headwinds, which exert a restraining force. In formulating our forecast for the Perth residential market in 2024, our team at Momentum Wealth identifies the following key headwinds and tailwinds as the most impactful drivers.
Tailwinds set to propel Perth’s property market in 2024
The real estate market in Western Australia, particularly Perth, has experienced a notable decrease in the number of homes for sale. From over 7,000 listings in early 2023, the figure dropped to below 5,000 by late 2023. To put this in perspective, a balanced market in Perth is estimated to have around 13,500 listings. This reduction indicates a tightening market.
Similarly, rental listings have been at near-record lows, ranging between 1,600 and 2,200 throughout 2023. Considering that a balanced rental market in Perth is around 6,500 listings, these numbers highlight the severity of the current rental crisis.
In Perth, the property market has been moving at an unprecedented pace. Properties have been selling rapidly, with the average number of days a property is listed on the market before sale being less than two weeks for most of 2023. This speed reflects a high demand and fast-moving market environment.
The affordability of housing in Western Australia stands out compared to other regions. Only 34.5% of a family’s income is typically allocated to mortgage payments in WA, which is significantly lower than the 56% in New South Wales, 45.1% in Victoria, and 42.2% in Queensland. This affordability is a key factor in the state’s real estate dynamics.
Western Australia’s annual population growth rate was the highest in the country at 3.1% in the year to June 2023. This growth, driven by strong demand for skilled workers and relatively affordable housing compared to other capital cities, is expected to continue.
Lastly, challenges in the construction sector have resulted in dwelling approvals, commencements, and completions remaining near record lows in WA during 2023. Over the past three financial years, an average of 14,000 new dwellings have been added annually in WA, totalling around 42,000. This is in contrast to the increase of approximately 60,000 households over the same period, highlighting a significant gap between supply and demand.
Headwinds influencing Perth’s property market in 2024
The Perth property market in 2024 is likely to be influenced by several headwinds. One significant challenge is the impact of strong inflation and rising cost of living pressures, which could make it difficult for individuals to save money and keep up with their mortgage payments.
Additionally, consumer sentiment and borrowers’ ability to secure loans have been adversely affected by recent interest rate hikes. As a result, some property owners may find themselves compelled to sell their homes as loan servicing becomes increasingly unaffordable. Notably, all four major banks predict that the cash rate will reach its peak and stabilize within a range of 4.35% to 4.60%.
Furthermore, the fear of an economic downturn and escalating global conflicts may lead investors to adopt a more cautious investment strategy, reducing their exposure to potential market downturns.
Despite these headwinds, Perth’s residential market performed better than many anticipated in 2023. In the 12 months leading up to the September 2023 quarter, house prices increased by 5.7%, while rental prices surged by 19.8%. As housing demand continues to climb in the final quarter of the year, it is expected that Perth’s house prices will slightly surpass the 2023 growth forecast of 3-6% (based on REIWA data) and also exceed the rental growth forecast of 5-10%.
Taking into account the mentioned headwinds and tailwinds, there is a confident outlook that the Perth market will maintain strong growth throughout 2024.
Data sourced from REIWA, REIA, ABS & Momentum Wealth Research