One of Australia’s largest banks expects house prices to rebound next year as rents rise and immigration hits record highs.
National Australia Bank has become the first of the Big Four banks to end rate hikes.
Record high immigration is occurring amid a housing supply crisis, which is expected to lead to a recovery in property values despite a series of punishing rate hikes.
NAB predicts a 4.3 percent rise in real estate prices in the capital in 2024, following a 3.8 percent decline in 2023.
Melbourne was tipped to see the biggest increase of 6.2 per cent, following a 5.8 per cent drop in 2023.
Prices in Sydney were expected to rise by a more modest 4.9 percent, following a less severe 2.2 percent fall this year.
One of Australia’s largest banks expects house prices to rebound next year as rents soar and immigration hits a record high (pictured Sydney’s Town Hall tram stop)
The Reserve Bank of Australia’s 10 consecutive monthly rate hikes have eroded property values, with cash rates now at an 11-year high of 3.6 per cent.
But NAB chief economist Alan Oster said strong population growth and a tight rental vacancy market would be enough to kick-start a recovery, with the unemployment rate remaining at a 48-year low of 3.5 percent in March.
“It increasingly appears that the very rapid revival in housing demand is offsetting these pressures on prices, with population growth recovering more strongly than expected since the reopening of borders in early 2022,” he said.
AMP senior economist Diana Mousina said immigration was at record highs while housing companies struggled financially.
“Australia is not building enough houses for its population, mainly because overseas migration has returned to record levels at a time when housing construction is slowing,” she said.
“This housing problem will put further pressure on the already tight rental market and support house prices upward, all other things being equal.”
Vacancy in the Australian capital was just 1.1 percent in March, data from SQM Research showed.
Due to the influx of international students, more and more prospective tenants are competing for a low number of available rental properties.
NAB predicts a 4.3 percent rise in property prices in the capital in 2024, after a 3.8 percent fall in 2023
In February, 142,580 international students arrived in Australia, an increase of 93,270 students compared to the same month in 2022, according to figures from the Australian Bureau of Statistics.
Australia’s net annual immigration in the year to September 2022 was 303,700 people – a 15-year record – with this figure including the permanent arrivals of skilled, family reunification and humanitarian migrants, along with international students, classified as long-term arrivals.
This brought Australia’s total population above 26.1 million.
The Treasury expects 350,000 migrants in Australia this financial year.
Adding that to the 2023-24 influx would amount to 650,000 migrants over two fiscal years.
This surge in population growth would coincide with restrictions in construction activity, with the industry suffering from the rate hikes.
“As a result, population growth is expected to well exceed completions in the coming years, leading to an undersupply of housing,” Ms Mousina said.
“The risk is that problems in the construction sector will not fully translate this pipeline of activities into actual deliveries.”
Amid the housing shortage, overseas buyers, who can buy brand new off-the-plan apartments, can also keep an eye on Australian property.
Daniel Ho, the co-founder and group director of Juwai IQI, which markets real estate to wealthy Asian investors, said Chinese buyers prefer Australian real estate.
Vacancy in the Australian capital was just 1.1 percent in March, data from SQM Research showed. An influx of international students means more potential tenants are competing for a low number of available rental properties (pictured shows a rental queue at Randwick in Sydney)
“The confidence many Chinese had in their own economy and housing market fell during the pandemic, so overseas markets like Australia look better by comparison,” he said.
“In China they speak of ‘revenge spending’, as people who have been under lockdown are spending on all the things they couldn’t buy during the lockdowns. Property in Australia is perhaps the ultimate revenge purchase.’
NAB has now stated that the RBA will stop raising interest rates before cutting them to 3.1 percent in the first half of 2024, from an existing level of 3.6 percent.
Inflation last year reached a 32-year high of 7.8 percent.
The monthly position for February fell to 6.8 percent.
NAB forecasts inflation will fall to 4.5 percent by the end of 2023, before moderating to 3 percent by the end of 2024, topping the RBA target of 2 to 3 percent.
The Reserve Bank left interest rates unchanged for the first time in a year in April, but minutes from that meeting on Tuesday suggested board members were still debating a rate hike.
Members considered the argument that in these circumstances it was better to keep raising interest rates to ensure that inflation is brought back to target more quickly, noting that monetary policy could be eased quickly if an adverse shock to it causes inflation and economic activity to fall by more or faster than predicted,” the minutes said.
Any reduction in inflationary pressures is likely to worsen housing affordability as rate cuts trigger a recovery in property values.
Australian households have a debt-to-income ratio of 188.5 percent, a record high.
Sydney’s median home price of $1,230,581 in March was 10.5 times an average full-time salary of $94,000, even with a 20 percent mortgage, data from CoreLogic showed.
Real estate is still very unaffordable, despite a 13.3 percent drop in value over the past year.