An update of our 2024 Housing Boom and Bust forecasts

Louis Christopher

Normally by mid-year, we can rule out some of our scenarios from our last (November 2023) Boom and Bust report. This year has been the exception as there have been some big questions about the rate of slowdown in projected migration and the Middle East has continued to boil and simmer.?But given we are now in August, even if we were to see that region completely fall into all-out war now, I believe the full impacts on our housing market would be most felt in 2025 rather than 2024, keeping in mind we are attempting to forecast the full year on year change in dwelling prices. So, for this update, we are now striking out scenario 2 and scenario 4.

FORECASTS TABLE

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That means on our assumptions and forecasts, the remainder of the year is going to be determined by any relative slowdown in Australian population growth rates and any imminent change in interest rates. I am a believer that migration rates are currently slowing. I can’t prove it as the migration data is six to nine months lagged on present day. But as we have reported of late, we are now seeing some softness in the inner-city rental markets of Sydney and Melbourne, which suggests to me that internal student inflows are slowing.

So, that means our base case scenario of a housing price slowdown for 2024, led by falls in Sydney and Melbourne housing is what I believe to be to most likely scenario that is going to play out for the remainder of 2024.

Thus far for 2024, at the capital city level, SQM Research has dwelling prices up by2.5%, led by Perth, Brisbane and Adelaide. As the base case forecast shows, we believed the market would change this year by somewhere between +1% to +3%. So as an average at the national level, our forecasts are looking good. However, this masks what is happening at the individual capital city level…

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Perth

Perth was the market we were most bullish on for 2024. And I am glad we were bullish. That stated, we still have undercooked the actual growth. We forecasted in all scenarios a 5% to 9% increase in dwelling prices. At this stage, Perth is easily going to come in at 20%+ gains. A combination of ongoing strong employment growth, strong interstate migration flows, ongoing underbuilding and a very, very favorable GST receipts deal with the Federal Government all ensures it remains boom times in the West.?But beware, commodity prices, particularly iron ore prices, have been falling of late. A major rout on global commodity markets would likely put an end to the current WA boom.

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Brisbane

Our base case for Brisbane was that dwelling prices would rise in 2024 by between +4 to +8%. If the population growth rate remained strong, then 7% to 11% was on the cards. At this time, Brisbane will most likely finish the year somewhere between 15% to 20% up on 2023 levels. That is massive growth. The fastest pace since the mid noughties. At present, there is nothing in the listings data, asking prices or auction clearance rates to suggest the tempo is slowing. So, I concede this is another city that, yes, while I was relatively bullish for 2024, my forecast has undercooked reality. Perhaps population has grown in South East Queensland by more than our upper-case forecasts. I wouldn’t be surprised if that is the case. But we won’t know that number until we hit mid-2025.

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Darwin

Our base case was dwelling prices would change somewhere between -3% to +1%. So, a falling to flat market for 2024. So far, we are on track with this forecast with our asking prices down by 2% for the past 12 months. Stock levels have remained elevated in Darwin over the year. Over one third of properties listed on the market have been listed for over 180 days, which has created a glut of housing stock for sale. The Darwin economy is languishing once again and the Covid surge of people from the southern states has stopped.

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Melbourne

The base case forecast for Melbourne was that the market would fall between minus 5% to minus 1%. Melbourne is indeed falling at present. This is the city we are most confident that our base case forecast is going to be correct. After a stronger than expected start to the auction year, Auction clearance rates have been weakening since February. Stock for sale levels have been increasing and are now running above long-term averages. And rents are now on the decline. It’s not exactly a happy time for Melbourne property owners and there is nothing in the current data to suggest a turnaround is imminent.

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Sydney

Our 2024 forecast was for Sydney housing prices to fall between -4% to 0%. At the moment we have asking prices down by 0.2% for the year to date. The 12-month change (August 2023 to August 24) on actual prices is up by 5%. But that 12-monthchange is about to come down and so we are confident our forecast will come in on target by year end. Sydney auction clearance rates have been weakening as all participants struggle with ongoing elevated interest rates. And we believe our central premise of a slowing population growth rate (while no certain proof as yet) is occurring as we speak, thereby creating a lull in underlying demand for accommodation.

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Adelaide

Adelaide isa city I am likely to be way off with my forecasts for 2024. We forecasted a flat to slightly growing market of 0 to 3%. If population growth rates were running stronger, then +2% to +7%. No matter, we are well, well off, for the market is up by 12% year to date and there is absolutely nothing in the leading indicators to suggest any type of slowdown/weakening is about to take place. Adelaide housing prices are now very likely to finish the year up by 15% to 20%. Many pundits have historically underestimated Adelaide, and while in previous years we have been a bit more positive than most, we were caught out this year. I think Adelaide’s relatively good affordability and a stronger than expected economy is doing great service to property owners, despite elevated interest rates.

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Hobart

The forecast for Hobart was pessimistic this year with falls tipped between -7% to-3%. So far, the falls have been 1.9% for 2024 to date. The market has weakened in Hobart this year and I see nothing in the leading indicators to suggest the market is about to change tune. If anything, the weakness may accelerate from here. We are confident our forecast is going to come in on target.

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Canberra

Canberra was the city we were most bearish on for 2024 with forecast housing price falls of -4% to -8%. So far for 2024, SQM has dwelling prices down 0.8%. So, we may have the direction right, but have we overstated the magnitude of the falls? Perhaps, but I am not willing to throw the towel in yet because what the data shows is the ACT market opened stronger than expected in early 2024 but has since weakened and weakened further as the year has rolled on. For the past 30days vendors have been negotiating with more haste. Asking prices are down 1.5%in just that time. Listings levels continue to rise.

So, there you have it. Overall, 2024 has seen very mixed market conditions depending on the city in focus. We will continue to have the boom-and-bust report up for sale for this week. Then we will take it down shortly afterwards to make way for the 2025 report which will be released towards November.