The development trends in the Australian real estate market in 2024 are discussed in a recent article by John McGrath. He points out that current interest rates are nearing the end of the upward cycle.

Since the peak of 8.4% inflation in December 2022, inflation has decreased to 4.3% in November 2023, leading many economists to believe that there won't be further interest rate hikes. In fact, the possibility of a rate cut is quite high by the end of this year.

This has significant implications for the entire Australian property market. Since May 2022, the Reserve Bank has raised interest rates 13 times in a row, causing widespread effects. High interest rates pose a significant challenge for ordinary homebuyers, especially first-time buyers, involving not only repayment issues but also difficulties in obtaining loans for the first time.

According to CoreLogic data, the median home value increased by 8.1% last year. Such robust growth in the background of high-interest rates is quite rare. Among the capital cities, Perth led with a growth rate of 15.2%, followed by Brisbane at 13.1% and Sydney at 11.1%. In regional markets, South Australia saw a 9.4% increase, Queensland at 8.7%, and Western Australia at 8.4%.

This surge in property prices is mainly due to demand outstripping supply. Last year, as the median house price across Australia slid by 5.3%, many homeowners preferred to hold onto their properties. With the continued rise in interest rates and the cost of living, their desire to expand housing size has been delayed, resulting in a scarcity of listings in the market.

If supply levels were not as low, the market might face even more significant declines. However, the situation may change in 2024. Strong price growth typically triggers an increase in market supply as people become more confident about selling their properties.

However, due to the current high-interest rates and uncertainties faced by ordinary homebuyers, coupled with the expected slight increase in unemployment rates, once supply levels return to normal, we might see the real estate market being significantly impacted, trending towards stability rather than the rapid growth seen last year.

However, the high-end market is an entirely different story. Demand for properties above AUD 5 million is very strong, almost unaffected by mortgage rates. In this segment, buyers mostly pay in cash, and with substantial wealth, I believe the demand in this market will continue to be robust.

Apart from high-interest rates, another pressing issue is the shortage of new residential developments. The real estate industry has been warning the government for years that we have not built enough housing. Complex regulations and rules are slowing down the development process, and this is an issue that needs urgent resolution. A report by CoreLogic indicates that in the past six months, the average number of residential building permits issued each month was 13,760, significantly below the decade's monthly average of 17,254.

This problem not only affects the sales market but also has a noticeable impact on the rental market. Due to the shortage of supply, rising rents have become a widespread phenomenon, resulting in higher housing costs for renters.