State of the market property report for February 2024

Australian housing prices continued to climb in January, extending their recovery from the post-Covid slump to a 12th consecutive month.

The Reserve Bank of Australia (RBA) also held off on further rate hikes at its inaugural meeting for 2024. The move has prompted some leading analysts to anticipate a reversal of monetary policy settings by as early as the second half of 2024.

Housing prices continue to rise in 2024

CoreLogic’s national Home Value Index (HVI) grew 0.4 percent in January, accelerating from gains of 0.3 percent in both November and December.

January marks the 12th consecutive month the national HVI has posted an increase, marking a full year’s rebound from the slump created by hawkish monetary policy at the tail end of Covid.

Corelogic’s research director, Tim Lawless, notes that since the start of the current upswing, housing values in Australian cities have leaped 11.0 percent and values for units 6.9 percent.

Regional performance was nonetheless highly varied, with several capital cities posting housing price declines in January, including Melbourne (-0.1 percent), Hobart (-0.7 percent) and Canberra (-0.2 percent).

Perth, Adelaide and Brisbane were the strongest performers amongst capital cities, all posting growth at a monthly rate of 1 percent or more.

RBA holds interest rates steady

At its first board meeting for 2024 held on 6 February, RBA governor Michele Bullock announced that the monetary authority would keep the benchmark cash rate target unchanged for this month.

February marks the second consecutive board meeting of the RBA (the RBA did not meet in January) where the authority has held off on adjustments to the interest rate.

Currently standing at 4.35 percent, the cash rate target remains at its highest level in over a decade, putting considerable pressure on Australian property owners.

There could be cause for optimism, however, with recent signals from the RBA pointing to the possibility of interest rate cuts before the end of the year.

Prior to the meeting, Bullock said Australia was “potentially on that narrow path” of inflation declining without economic activity shedding too much momentum.

In its quarterly Statement on Monetary Policy released after the February board meeting, the RBA said it expects inflation to slow further in 2024, to tap the top of its 2-3 percent target band by mid-2025.

Inflation is then projected to decline to the middle of the target band by mid-2026.

This forecast is based on the assumption there will be a minimum of four interest rate cuts over the next two years, coinciding with the gradual easing of inflation.

As a consequence, the RBA has paved the way for two rate cuts in the second half of 2024.

“The cash rate is assumed to remain around its current level of 4.35 percent until the middle of 2024 before declining to around 3.2 percent by the middle of 2026,” the RBA said in its quarterly statement.

Big banks all anticipate cuts in 2024

Given the latest round of comments and projections from the RBA, all four of Australia’s big four banks forecast that the cash rate has already hit its peak, with cuts on the way in the second half of 2024.

Westpac and CommBank anticipate a 25 basis point cut in September, while NAB and ANZ predict an initial reduction in November.

Rate cuts by the RBA will reduce the cost of borrowing for both property developers and mortgagors, making it easier for them to either purchase properties or fund construction and renovation.

This in turn could boost growth in housing prices – a possibility that investors should weigh heavily as the current hiking cycle approaches a close.

Queensland follows in the footsteps of NSW and Victoria in setting ambitious housing targets

Queensland premier Steven Miles announced $3.1bn will go toward a Homes For Queenslanders plan to build more homes faster with a target to deliver one million new homes by 2046. $350m will go towards an Infill Fund to encourage more development in underutilised areas. Miles said that 95 percent will need to be delivered by the private market, while the government will also focus on providing a $160m renters relief package and delivering 53,300 social homes.

CrowdProperty head of operations Lisa Digby said the increasing focus from state governments on infill ‘well located’ housing was an opportunity for small and medium developers.

“With the focus now by several state governments to change planning policy for more fast track approvals and intent for more infill development close to jobs, amenities and where people want to live, there will likely be plenty of opportunity for the developer community to be a part of unlocking much needed housing supply across the eastern seaboard,” Digby said.

“In-fill development is critical to delivering a lot of well-located housing, especially in areas that aren’t suitable for high rise projects but more suited to medium-density dwellings.

“The high-volume players aren’t going to look at the smaller in-fill sites, because it’s not worth their while with the overheads and cost base they need to cover. It’s the small-to medium developers who fill this gap.”