The New Year is upon us and January is the perfect time to take stock of the year ahead and plan for success. It’s also the time where plenty of ‘experts’ are making their forecasts for what the market will do over the next 12 months.

Let’s take a look at the market and what economists are anticipating.

Picking up where we left off

We finished up 2023 with similar market conditions in more than a few locations around Australia.

Major capital cities were recording growth over consecutive months after bouncing back from a correction phase driven by an intense period of RBA cash rate hikes.

It seemed borrowers had managed to withstand the central bank’s attempts to curb inflation and there was some optimism that the rate hiking cycle was at an end, or close to.

In such an environment, the key natural drivers of supply and demand were enough to ensure values held firm and even crept up. But will this be sustainable for the year ahead?

Supply issues remain

The construction industry has been lagging well behind its targets for some time now, due to staffing shortfalls, supply chain issues and soaring prices of materials.

Meanwhile, the nation’s immigration intake has been on the rise as the Federal Government opens the borders to try and prop up the economy and stave off recession.

Neither of these two factors look likely to reverse in the near future, meaning competition between buyers will keep a floor under values.

Rate expectations

The cash rate is sitting at 4.35%, its highest point in more than 12 years. And the RBA will commence its new meeting schedule in 2024, replacing monthly meetings with 8 sittings per year. All eyes will be on the first meeting, in February, and whether festive season spending will affect inflation enough to require another hike.

Most economists believe rates are at, or close to, their peak and there are whispers around rate cuts beginning later in 2024. Of the big banks, CBA is the most bullish on cuts, predicting the cash rate to finish this year at 3.6%, before falling to 2.85% by the end of 2025. ANZ and Westpac both believe rates have peaked already, while NAB believes one more hike may be in the works before cuts begin.

Should February see rates left on hold, expect to see positivity in property markets. And if the type of rate cuts that CBA are predicting actually take place, we may see property values enter another rapid growth phase in the near future.

What do property economists say?

Domain Research expects national house prices to grow by 5-7%, while PropTrack is also around the 5% mark, expecting Perth to lead the way with up to 8% growth, followed by Adelaide (up to 7%) and Brisbane (6%). Sydney (5%) and Melbourne (4%) were next, while Darwin, Canberra and Hobart could experience falls.

Banks expect moderate growth, with Westpac and ANZ tipping 6% increases across the nation, while CBA and NAB forecast 5%. The big four are also positive when it comes to Perth.

SQM Research’s Louis Christopher is the bear of the bunch, believing a price fall is on the cards, led by Sydney and Melbourne, depending on a few variables around current international conflicts and other external economic factors.

Rents on the up and up

There’s no way down for rental prices at the moment, despite already soaring for a couple of years. Supply of rental properties is very tight, more buyers have been forced into the rental pool due to reduced borrowing power or mortgage defaults and the creation of new housing is a long way behind where it needs to be. Rental prices may see double digit growth again this year, especially in some of the hotter markets like Perth, Adelaide and Brisbane, where vacancy rates are well below 1%.

How do we prepare?

B.Invested clients, and anyone else thinking of investing, should be prepared to take advantage of deals in 2024. Get finances in order, make sure you know how much you can borrow (if you need to) and engage with your mortgage broker and buyer’s agent to make a plan of attack.

B.Invested sources properties for clients for below market value. Doing so in the current environment could mean double digit percentage growth on values, while earning very lucrative rental returns.