The forecasts for the next 12 months in the property market are out and it seems the price increases are set to continue.
For the 2024-25 financial year, Domain has predicted prices will continue to climb.
National house prices are expected to see up to 6% growth while units will see as much as 4%. This is slower, compared to the 2023-24 financial year when the combined capital markets recorded 8.9% growth for houses and 6.5% for units.
PropTrack, too, has predicted sustained increases but slower than the 12 months to June 2024.
In its property market outlook for June, PropTrack forecasts growth of up to 6.0% for dwellings in the capital cities, compared to the 6.3% seen over the last 12 months.
Why this sustained growth?
Supply versus demand
One of the key drivers is Australia’s steady population increase, with Australian Bureau of Statistics (ABS) data showing the country grew 2.5% in the 2023 calendar year, or 659,800 people.
Naturally, the more people there are in Australia, the more homes we need to house them.
However, supply hasn’t been keeping up due to slow building approvals with the ABS, in June, reporting a decline of 8.5% in the number of dwellings approved in the previous 12 months.
As a result, the market is expected to remain tight with little choice for buyers. This, in turn, will increase competition, and keep upward pressure on prices.
Construction challenges
The supply challenges are further exacerbated by the construction industry which continues to face high materials costs and labour shortages.
CoreLogic’s Cordell construction cost index revealed that building or renovating currently costs around 30.0% more than pre-Covid. These increased costs combined with overall labour shortages have slowed the output of new homes, adding to the competition for existing dwellings.
Both the federal and state governments are focusing on increasing housing supply, but it remains to be seen whether this will be done soon enough or in sufficient quantity to keep up with demand.
Possible interest rate cuts
Despite the challenges with supply and demand, there is some hope that interest rates will be cut in the next 12 months. The big four banks have all predicted cuts sometime between November and June next year.
This will make it cheaper for buyers to borrow, adding more competition to the market. This increased buyer activity is also expected to put upward pressure on prices.