Navigating the Shifts in Australian House Price Trends: Expert Insights for 2024 Home Buyers and Investors

Sydney: The Most Expensive City

Sydney, the city known for its iconic Opera House and Harbour Bridge, holds another distinction – the most expensive city to buy property in Australia. With a median house value of nearly $1.4 million, Sydney’s property market has seen a notable increase in house price growth, with a 1.7% rise in June and a total growth of 6.7% since January. This trend reflects the high demand and low supply dynamics characteristic of this bustling metropolis.

Even within this expensive landscape, a clear divide is apparent. The median house price in Sydney stands at a staggering $1,397,366, while the median unit value comes in at a slightly more affordable $836,220. Despite these high prices, property investors are not retreating. But there’s a sense of caution in the air, with predictions suggesting a possible decline in Sydney’s housing market as soon as next month.

Melbourne: A Slight Decrease in Prices

Heading south from Sydney to Melbourne, the property market narrates a slightly different tale. Over the past year, Melbourne’s property market has seen:

• A slight dip, attributed to rising advertised stock levels, worsening affordability, and persistently low consumer sentiment.
• A significant surge in property prices, with a historic boom of over 17% in 2021.
• A turbulent market in 2022.

Despite these hurdles, Melbourne’s property values, including house and unit prices, have witnessed a 0.7% increase in the recent period, suggesting a modest rise in house prices. This dynamic of fluctuating prices, coupled with the city’s vibrant culture and stable economy, continues to draw investors and home buyers alike.

Perth: Surprising Growth in the West

Taking a turn to the west coast, Perth’s housing market unfolds an entirely different narrative. Known for its beautiful beaches and laid-back lifestyle, Perth is now gaining attention for its booming property market. Despite minor price drops in October, the city has demonstrated substantial growth, surpassing that of major cities such as Brisbane and Sydney.

In fact, Perth experienced the highest surge in property prices in recent months, a trend that has caught the eye of many property investors. The city’s strong economy, coupled with increasing demand for housing, has created a favourable environment for both home buyers and investors.

Digging deeper into the Australian property market, the impact of interest rates becomes increasingly apparent. Recent hikes have significantly increased financial pressure on Australian households, leading to a record level of mortgage stress. As of mid-2023, around 5% of owner-occupiers found their essential expenses and mortgage costs surpassing their income.

If interest rates continue to rise, it is possible that Australians may need to allocate up to 40% of their income towards home and other loans. This intertwining of interest rates and property prices forms an intricate dance that shapes the market dynamics.

Mortgage Stress and Affordability

Mortgage stress levels in Australia are at an all-time high. Ongoing economic uncertainty, inflation, rising interest rates, job loss, an increase in living expenses, and high levels of debt are all culminating in a perfect storm of financial pressure. As property prices rise, the dream of homeownership seems increasingly elusive for many Australians.

The rising house prices exacerbate mortgage stress by creating obstacles for first-time buyers and by increasing the financial burden on existing homeowners. As mortgage repayments become more demanding, the repercussions echo throughout the economy, affecting consumer spending and overall economic growth.

Tightening Rental Markets

The tightening of rental markets in Australia is being propelled by several factors, including:

• High immigration rates
• Low vacancy rates
• Increasing asking rents
• The pandemic, which has led to a worsening situation for renters in every capital city compared to 2019, with notable increases in rent values raising concerns about affordability.

This tightening of the rental market has real-world repercussions for the most vulnerable renters in Australia. Particularly for pensioners and single parents, the tight rental market crisis has made finding affordable rental options a significant challenge. To meet this escalating demand, an additional 127,000 dwellings are anticipated to be necessary this fiscal year alone.

Addressing the Rental Crisis

Addressing the rental crisis requires a multifaceted approach. Private investors, who account for approximately 84% of all rental accommodation, play a crucial role in Australia’s rental market. Rental assistance programs, such as the Commonwealth Rent Assistance (CRA), are also vital in alleviating rental stress.

Additionally, social housing initiatives offer affordable rental options to low-income individuals and families, thereby helping to increase the availability of affordable rentals and decrease the demand for limited options. Measures such as the Backyard Home Initiative and the establishment of a National Housing and Homelessness Plan, as well as interventions like rent control measures and encouragement of affordable housing developments, are all currently in place to facilitate access to secure and affordable housing for Australians.

Government Grants and Assistance

Several grants and assistance programs have been implemented by the government, targeting first home buyers to facilitate their entry into the market. The Help to Buy Scheme is one such initiative, enabling eligible buyers to co-purchase a home with the government, providing a guarantee of 30% of the equity for an existing home or 40% for a new home.

However, to be eligible for these grants, potential homeowners must meet specific criteria, including being 18 years or older, never having owned property in Australia, and being a permanent resident or Australian citizen. While these grants have been designed to offset the effects of the GST on homeownership, affordability remains a concern.

Tax Deductions and Incentives

Property investment can be made more appealing through tax deductions and incentives, especially in regions like Perth, where the market is booming. These incentives offer financial advantages and reduce the expenses associated with property investment, such as mortgage interest, property management fees, and repairs and maintenance.

The tax incentive scheme for property investment in Australia has undergone changes, with the introduction of new incentives as of April 2023, aimed at boosting housing supply. In Perth, property investors can avail of the following tax deductions:

• Depreciation
• Capital works depreciation (Division 43)
• Repairs on the investment property
• Interest charged on loans used for investment purposes.

Best Locations for Property Investment

The decision of choosing the right location for property investment is crucial and can significantly influence an investor’s returns. In 2024, Perth, South Australia, and Tasmania are among the sought-after locations for property investment. Forecasts suggest promising returns for property investments in these regions.

For instance, Adelaide’s home values are forecasted to increase by 6.2%, closely following Brisbane’s growth, while Perth leads with an expected increase in house prices of 13 to 18 percent. Additionally, the current rental yield in Perth is 3.9% for houses and 5.4% for units, further enhancing its appeal as a desirable location for property investment in terms of rental demand.