Exploring the dynamic landscape of NSW’s property market in 2024

Exploring the dynamic landscape of NSW’s property market in 2024

January 11, 2024 | by Darryn McRae

As 2024 begins, the NSW property market stands at a pivotal juncture, facing a complex mix of challenges and opportunities. Exploring the dynamic landscape of NSW’s property market in 2024 The coming twelve months promise to be a defining moment for real estate, shaped by fluctuating economic conditions, policy developments, and evolving consumer preferences. Here, we explore several facets of the market - from the impact of interest rate changes and economic forecasts to the subtle shifts in housing demand and supply dynamics - and discuss how they could impact the dynamics of our markets as the year progresses.

An overview of market dynamics

Despite the challenges of 2023, such as increased borrowing costs and limited property availability, the Australian housing market showed remarkable resilience. This tenacity is evidenced by the sustained demand for homes, which bolstered property values throughout the year. Looking ahead to 2024, we can anticipate a slight softening in market conditions, influenced by the culmination of the rate-hiking cycle and the ongoing impact of high interest rates on the economy. Initially impacting the higher-end property segment, this slowdown is expected to gradually extend to more affordable market areas.

Economic indicators and policy responses

The Reserve Bank of Australia (RBA) has predicted a rise in unemployment to 4.25% by the end of 2024. Indicators like GDP growth and household savings rate also point to a tightening financial situation for Australian households.1 The major Australian banks collectively suggest a trend of gradual decline in interest rates as 2024 progresses. Although each bank has its nuances in forecasting, the overall expectation is for a peak in interest rates early on, with the general consensus pointing towards a notable easing of rates and a period of adjustment towards the end of the year.2 As monetary policy shifts in response to broader economic conditions we are likely to see a corresponding recalibration in the housing market, with improved market conditions and an upturn in buyer demand that will start to drive house prices upwards again.

The complexities of housing sentiment

Things are not all straightforward, though. In a recent statement, Westpac’s Senior Economist Matthew Hassan shed light on the complex dynamics within the housing market. He noted the tension between affordability challenges and optimistic price expectations, indicating a delicate balance in the market. Hassan further noted the nuances in public perception, citing a metric known as the ‘time to buy a dwelling’ index, which gauges the probability of consumers entering the housing market. This index rose 1.6% in December to 74.3, a figure that, despite the slight increase, remains relatively low by historical standards.3 This shift underscores the significant impact of monetary policy on housing sentiment and buyers’ decisions. It reflects how recent economic developments and policy decisions are directly influencing potential homebuyers’ perspectives, which will play a pivotal role in shaping the housing market’s trajectory as we head into the new year.

The affordability equation

Housing affordability, currently being impacted by interest rates, market demand and supply dynamics is a key aspect in the 2024 property market. While the expected pause in interest rate hikes will potentially ease mortgage serviceability later in the year, the deposit hurdle is set to remain significant, especially for first-time buyers. At the same time, increasing home values and escalating borrowing costs continue to challenge affordability. In response to these factors, we might see a fundamental shift in housing preferences, including a potential increase in internal migration to more affordable markets and a rise in shared housing arrangements.

Shifting preferences in response to financial constraints

In fact, we’ve already seen the beginnings of a significant change in housing preferences, which reflects the diverse needs and aspirations of homebuyers in a rapidly changing economic landscape, and these trends are likely to extend into 2024 and beyond. One notable example is the increasing demand for larger homes with flexible spaces, multiple bedrooms, and adaptable layouts to cater to an increasing move towards multigenerational living in NSW. Economic pressures, such as high living costs and deposit accumulation challenges, are driving this shift, particularly in suburban areas where such properties are more feasible. Demand for larger apartments is also expected to increase as these dwellings offer growing families a practical and more cost-effective alternative to standalone houses, melding accessibility, convenience and community amenities with spaciousness and affordability.

The rental market

A defining feature of the current rental market is the combination of rising rents and persistently low vacancy rates. However, the market is likely to reach an inflection point in the coming months, driven by affordability constraints that have already begun to influence tenancy habits, with more people choosing shared leases or even opting to move back to the family home. For property investors, the strong rental market presents lucrative opportunities, with the potential for consistent rental income and long-term capital growth. Conversely, for potential homebuyers, especially those entering the market for the first time, the rising rents pose a significant challenge. It impacts their ability to save for a deposit, prolonging their journey towards homeownership. This adds a layer of complexity to the overall issue of housing affordability.

A few final thoughts

It’s clear that the NSW property market is entering a period of significant transformation as the property cycle continues its inevitable turn. The interplay of economic forces, policy shifts, and changing consumer needs paints a picture of a market in flux, yet brimming with potential. The coming months will test the resilience and adaptability of the market as expectations of a shift in interest rates and a recalibration of housing affordability present both challenges and opportunities. While there will still be some challenges for first-home buyers, the potential easing of mortgage pressures later in the year offers a glimmer of hope. Investors, meanwhile, can look forward to harnessing the strengths of a robust rental market, while being mindful of the evolving landscape and tenant preferences. Meanwhile, the rise in shared housing arrangements and the growing appeal of multifunctional living spaces are trends that warrant attention, signalling a shift in the way Australians view and engage with their living spaces. Ultimately, the outlook for our property market in 2024 contemplates both adaptation and opportunity. Whether navigating the complexities of buying a first home, investing in the rental market, or adapting to new living arrangements, the key will be in staying informed and agile to prepare for the changes and seize the opportunities that lie ahead in this ever-evolving market.

[1]https://www.rba.gov.au/publications/smp/2023/nov/economic-outlook.html#:~:text=Because%20of%20the%20more%20resilient,to%202025%20(Graph%205.8) [2] https://www.smh.com.au/property/news/what-s-the-outlook-for-property-prices-in-2024-20231101-p5ego8.html [3] https://www.westpaciq.com.au/economics/2023/12/consumer-sentiment-december-2023

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