Sydney’s renowned real estate expert, John McGrath, predicts that house prices will keep soaring for another year and a half, following the 8.4% increase in dwelling values since January. This upward trajectory can be attributed to a combination of factors, such as supply constraints, massive migration, and low-interest rates.
The supply of dwellings is expected to remain limited, primarily due to a significant drop in approval rates. Recent data indicates that the average monthly dwelling approvals have dipped by 23% compared to the past decade. Additionally, apartment approvals have plummeted to their lowest since October 2021, leading to less than half the peak numbers seen in 2016. The shrinking supply is creating an increasingly competitive housing market, wherein demand outweighs availability.
On the other hand, Australia is witnessing record high net overseas migration, which is anticipated to bring in 715,000 people over the next two years. A sizeable portion of these migrants is likely to settle down in major cities like Sydney and Melbourne, further fueling the demand for homes and subsequently driving up prices and rents. The massive influx of migrants, coupled with the collapsing housing construction, is expected to result in a progressively growing market shortage.
Moreover, the rapid rate at which new listings are absorbed indicates that demand continues to surpass supply in the majority of markets. With total listings being 17.1% below the five-year average, the market imbalance is quite apparent.
Additionally, John McGrath believes that interest rates are reaching their peak, with the Reserve Bank of Australia (RBA) targeting an inflation rate of 2% to 3% by 2025. Many experts concur that one more rate hike is probable before this cycle comes to an end. Despite the ongoing mortgage rate increases, both homebuyers and sellers seem to have adjusted to the new standard of elevated prices.
Furthermore, the domestic economy is currently grappling with a per capita recession characterized by dwindling real household consumption and a weakening labor market. Given these circumstances, it is unlikely that the RBA will raise rates again. Instead, it is predicted that average mortgage rates will continue to climb over the next six months as fixed-rate mortgages reset.
Taking all of these factors into account, McGrath asserts that Australian home prices will keep breaking records and surge even higher during the next 18 months. This growth seems plausible considering the acute lack of supply, skyrocketing rents, and increasing mortgage rates. The RBA is likely to start cutting rates next year, which should propel house prices even further upwards. In a nutshell, the country is in for a rollercoaster ride of soaring property costs, and it shows no signs of slowing down any time soon.
