Tight supply a key factor in dwelling price growth this year
Following a 10% growth in 2023, dwelling price growth will slow down to 6% this year and to 4% in 2025, major bank Westpac said in its latest Housing Pulse report.
Westpac economists maintained their forecast for dwelling prices as they noted a continuation of the themes observed at the start of the year.
Property prices have risen at a steady pace so far this year, with tight supply underpinning the market. However, performance varies significantly across capital city markets.
Perth remains the hottest market in the country, followed by Adelaide and Brisbane. Growth is more subdued in Sydney and Melbourne, and patchy across smaller capital cities and regional areas.
Westpac’s mid-year Housing Pulse report highlights several ongoing themes, Westpac senior economist Matthew Hassan (pictured) said.
“Consumers remain torn between poor affordability, weighing heavily on assessments of whether now is a good time to buy, and positive price prospects,” he said. “Supply – both in terms of properties on the market and the physical stock of housing – remains almost universally tight.
“Turnover dipped slightly over the last three months, unwinding some of last year’s recovery. Sales volumes are up 8.5% on the same period a year ago, but are still relatively low by historical standards.”
In Sydney, high prices are causing some buyers to step back, but limited supply is helping auction clearance rates remain relatively stable; while in Melbourne, a surge in investor selling triggered by state government tax changes in the second half of 2023 has created an overhang of stock that has yet to be absorbed.
Westpac expects price growth in Sydney to be 5% this year, while Melbourne prices are projected to grow by just 2%, both below the nationwide average.
The report also examines the rental market, which remains tight by historical standards. Nationally, the average rental vacancy rate since 1980 has been 2.75%. Currently, all major capital cities have vacancy rates of 2% or lower.
“The good news is the extent to which low vacancy rates are translating into higher rents appears to be moderating,” Hassan said. “Across the major capitals, annual rental price growth peaked at over 20% about a year ago but is tracking back towards a single-digit growth pace, with Perth a notable exception. Part of the reason for that is a cooling in population growth, which has been a key driver of the tightening in rental markets since 2023.”
Westpac expects population growth to slow as movements in foreign student flows normalise and tighter visa criteria take effect. Growth is projected to slow from 2.5% in 2023 to 2% in 2024 and 1.5% in 2025.
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