What’s really happening in the residential property market
Andrew McCann - Chief Executive Officer
September 2024It has been a productive year for the residential property market. Auction clearance rates have remained robust, and at Jellis Craig, as with the rest of the market, we are experiencing an increase in property volume compared with the same period in August last year (up 10.9 per cent in 2024). It is also positive to see that whilst listings are up, attendance at inspections remains consistent year on year.
After a series of successive interest rate rises through 2022 and 2023, the market is now responding well to a period of stability.
Although a rate reduction is not widely anticipated until 2025, there is a sense of certainty in the economic outlook, which has spurred more buyers to enter the market.
While interest rates are a key consideration in influencing housing market conditions, they are not the only factor.
The supply of housing is another major factor. There is a well-documented undersupply of housing across Australia, and Melbourne is no exception. All of this points towards a positive outlook for buyer demand and activity.
The number of international immigrants and expats returning to Australia is notable, with the Australian Government’s Centre for Population anticipating that Melbourne will reach a population of 6 million by 2032, positioning it to take the title of Australia’s largest city. These additional tailwinds of immigration and population growth, along with supply issues, point to future growth in the property market.
Ongoing challenges in relation to renovation costs and build prices have meant quality turnkey homes across our marketplaces continue to excel.
As always, the top end of premium markets in inner Melbourne are not as impacted by economic factors as other parts of the market, and this, as well as a relatively low supply of
available homes, has meant this small segment remains highly sought-after and extremely competitive.
While activity abounds, the dynamic in the property market outside of metropolitan Melbourne has shifted due to increases in land tax. Taxation changes are having an impact on the flow of listings in regional Victoria and coastal markets such as the Bellarine and Mornington Peninsula, where clients are increasingly considering rationalising their property portfolios due to cost increases. With the talk of interest rates easing, we’re starting to see these markets rebound.
Over the past two years, the rental market has faced incredible difficulties. Demand and supply imbalances driven by low levels of development and affordability issues have contributed to a challenging period for renters. Simultaneously, increased holding costs in terms of interest costs, taxes and compliance mean that many rental providers are selling investment properties to deleverage their personal balance sheets, leading to further pressure on the market. On the flip side, investors who are maintaining their position through this point in the cycle are seeing an increase in their rental return. For this situation to stabilise, governments will need to stimulate the economy for more housing through either build-to-rent development schemes or incentives for more residential investors to enter the market, which will be a medium-term solution to the challenge.
My prediction for the next 12 months is that interest rates will stabilise and decrease marginally in the early part of 2025, resetting the market to its new level. We will continue to see an element of investment sell-off due to the impact of interest rates and taxes. As rates stabilise, the market more broadly will find confidence as people start to factor in a rate reduction in 2025.
Heading into 2025, the sales market will see stable capital growth and we may start to see some alleviation in the rental market as supply and demand factors start to rebalance.
