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08/01/2024

Housing Shortfall to Worsen in 2024

A year of record population growth and falling construction rates have delivered one of the worst housing crises.

In the 2022-23 financial year, Australia’s population grew by 624,000 against only 174,000 dwelling completions.

While population growth is expected to moderate to around 500,000 in 2024 (i.e. the second-highest level in history), the forward-looking indicators also point to a further slowing in dwelling construction, which will mean the shortfall in housing will continue to worsen.

Annual dwelling approvals fell to a decade-low in October to only 164,000:

New home sales and the number of loans for the purchase or construction of a new home have also fallen to around decade lows:

Therefore, the housing shortfall will worsen in 2024, completely obliterating the Albanese government’s delusional target of building 240,000 homes a year for five consecutive years (a level never achieved).

Benni Aroni, the developer of Melbourne’s Eureka Tower, told The AFR that while the need for housing remains strong, “the problem is that we can’t make a feasibility work. And we can’t make a feasibility work because we haven’t [got] stability of cost and the cost of finance. And neither of those is going anywhere south in the next 12 to 24 months”.

The cost of building a new home continues to rise, albeit at a slower pace, and this has both tempered buyer demand and made construction unviable.
Prices for key materials used in new home construction have soared since before the pandemic. For example, the AFR reports that terracotta tiles have risen 62% since December 2019, timber windows have lifted 61%, and reinforcing steel has climbed 59%.

Add a shortage of builders, insolvencies, and higher financing costs (interest rates) into the mix. There is no way that enough homes can be built to meet historically high immigration-driven demand.

This is why analysts like Jarden economist Carlos Cacho believe the Albanese government’s 1.2 million homes target over five years is delusional, citing barriers such as the 30% rise in construction costs and the 30% reduction in borrowing capacity.

“Despite housing prices picking up again, despite the chronic undersupply of housing, you haven’t seen a pick-up of sales,” he said. “On our numbers, we expect housing starts in calendar year 2024 to slow to about 155,000, which would be the lowest since 2012”, Cacho said.

“Something doesn’t seem to stack up. While new supply is badly needed, higher interest rates and construction cost means many potential buyers cannot afford new housing. Including land, we estimate new house costs are up 26 per cent since December 2019”.

Meanwhile, the Victorian Government – which has trumped Albo with an even more delusional target of building 80,000 homes a year for 10 straight years – continues to gaslight that it is a supply problem rather than an excessive immigration problem:

“The Victorian government, which has its own goal of building 80,000 new homes annually for the next 10 years, said “bold” targets were necessary to meet population growth projections. Melbourne is expected to grow to 9 million people – the size of London – by 2050, up from 4.8 million today”.

“The status quo is not an option, and admiring the problem will only worsen it,” a Victorian government spokesman said. “Unless we take bold and decisive action now, Victorians will pay the price for generations to come”.

Melbourne would only grow to the “size of London by 2050” because of the federal government’s extreme immigration policy:
If the federal government reduced net overseas migration to the historical average of around 100,000 people a year:

Then, our cities wouldn’t grow like cancer cells, and we wouldn’t experience chronic housing shortages.

It’s the extreme immigration, stupid!

05/01/2024

⚡️ WHATS TO COME IN 2024
1. Home values in Australia are forecasted to increase in 2024 despite reduced borrowing capacity and higher interest rates. LJ Hooker's head of research, Matthew Tiller, predicts that the number of properties on the market will challenge this growth.

2. The first interest rate cut since early 2020 is expected at the end of 2024. Tiller suggests that the Reserve Bank of Australia (RBA) will likely keep rates on hold long before implementing rate cuts.

3. Tiller identifies suburbs that are poised to perform well in 2024. Quinns Rocks in Western Australia and Mandurah, located south of Perth, are expected to grow due to their affordability and low stock. In Brisbane, Taringa and stabilizing areas on the Gold Coast like Elanora and Arundel are predicted to be attractive to buyers.

4. Sydney's hotspots include Dee Why and Glenmore Park, where falling median house prices offer good value for families. In Melbourne, Croydon South, Carrum Downs, and Bayswater North are expected to grow in popularity due to falling values. Payneham in Adelaide is noted for its steady growth, with Plympton Park also showcasing buyer demand.

5. Homeowners will likely capitalize on recent price growth by using their equity to upgrade or downsize. Additionally, struggling mortgage holders may sell with confidence, knowing they have some equity in place.

03/01/2024

⚡️ WE CANNOT BUILD ENOUGH HOUSES!
1. The National Cabinet announced a plan to build 1.2 million new dwellings over five years, but they will not be directly involved in construction. Instead, they plan to ease planning and zoning laws to encourage private developers to build the necessary homes.

2. Australia's previous record for new home construction was around 223,000 in 2017. Achieving the National Cabinet's target of 1.2 million homes would require a level of construction that has never been achieved before.

3. The construction industry faces high interest rates, elevated materials costs, builder failures, and labour shortages. These factors make it even more difficult to meet the ambitious housing target.

4. Construction indicators have already fallen to decade lows, with only 164,200 homes approved for construction in the year leading up to October. New home sales and loans are also at historical lows, indicating decreased construction activity.

5. Experts, such as Phil Dwyer from The Builders Collective, believe that the 1.2 million homes target is unrealistic and will not be met. He warns of potential insolvencies among sub-contractors and emphasizes addressing the housing shortage by reducing population growth. If population growth continues to outpace the housing supply, the housing crisis in Australia will worsen.

29/12/2023

MIGRATION
1. Australia's population has experienced a significant increase, with a growth rate of 2.4% since 2022, adding more people than ever before.

2. The main driver of this population growth is overseas migration, which has seen a record high of +518,100 in the 12 months to June 2023, surpassing previous records.

3. Discussions about the sustainability of this high migration intake have arisen, and the government plans to reduce the migration intake. However, the out-migration component is influenced by factors beyond government control.

4. The states and territories in Australia have all experienced population changes, with New South Wales (NSW) and Victoria (Vic) receiving the majority of overseas migration. Victoria, in particular, has seen a resurgence in population growth due to the return of international students.

5. Western Australia (WA) has become the fastest-growing state or territory, surpassing Queensland (Qld), with a population growth rate of 3.1%. Net Interstate Migration remains negative for NSW and positive for Queensland, while South Australia (SA) and Tasmania have experienced fluctuations in interstate migration. All states and territories have a positive natural increase, indicating potential population growth without migration.

21/12/2023

2024 HOUSING MARKET
As we approach the traditionally quiet holiday period for the property market, many uncertainties face homebuyers, investors and renters in 2024.

Will we see interest rates start to fall? If so, what impact will that have on the market? Why are investors selling out, and what does that mean for renters?
Here are seven questions facing the housing market in the year ahead.

Will the strong home price growth of 2023 persist?
Property price rises in 2023 were much stronger than most people expected.

Considering the low sales volumes, weakening demand and falling prices that were evident in late 2022, prices were expected to fall further during the year. However, over the first 11 months of 2023, national property prices rose by 5.5%.

Prices hit yet another record high in November
With the broader economy expected to slow and the unemployment rate anticipated to increase as the impact of 13 interest rate rises is felt, the price growth rate will slow in 2024. The latest PropTrack Property Market Outlook report forecasts national price growth of 1% and 4% next year, with some capital cities expected to rise as much as 8%.

Note: 2023 price growth is year-to-date from January to November 2023. Source: PropTrack

Prices are not expected to fall due to the strong level of demand, lack of stock for sale, limited new housing stock and likely stable interest rate environment, but the pace of growth is expected to be slower than what we’ve seen in 2023.

Will interest rates fall, and if so, when?
Since the first rate increase in May 2022, the cash rate has surged by 425 basis points, from a historic low of 0.1% to a 12-year high of 4.35%.

With the increases in the cash rate to date, borrowing capacity has fallen by around 30%.
Interest rate futures are currently pricing in no further increases, and the expectation is a 25 basis point cut to rates by mid-2024.

Of course, the path of interest rates is unknown and difficult to forecast. While inflation remains outside the target range, it seems unlikely that rates will be cut soon, and the chance of further rate hikes remains.

Will more vendors come to market?
Throughout 2023, the total number of properties for sale has remained at low levels, the PropTrack Listings Report shows, as it has throughout recent years.

From the middle of the year, there has been a large increase in the number of new listings that have come to market; however, this was largely driven by Sydney and Melbourne.
Other major capital cities have seen persistently low volumes of new listings.

Year-on-year change in total listings on realestate.com.au
The big unknown for Sydney and Melbourne in 2024 is whether the strength in new listings over the second half of 2023 will continue in 2024.
Elsewhere, it is about whether a meaningful increase to the low stock volume for sale is on the horizon.

Is there going to be any relief for renters?
Rental price growth accelerated throughout 2023 as demand outstripped supply, leading to a lower rental vacancy rate and quicker property leasing.

In some cities, advertised unit rents have increased by more than 20% over the past year. However, the gap between house and unit rents remains wider than in pre-pandemic.

Tight rental conditions are driving up prices across the country.
Rental growth has been fuelled by strong demand and the ongoing lack of supply driven by a higher volume of investors selling than the number of new investors entering the market.

While it is difficult to imagine rents continuing to rise as rapidly as they have over the past year, it is also hard to see rents in the major capital cities doing anything but increase further in 2024.

Will new housing rebound as construction cost escalations ease?
New dwelling approvals are sitting at close to decade-low levels.

The increases in material and labour costs since the pandemic's onset are well documented, but other factors are also at play. Higher interest costs on development and construction finance and higher mortgage costs for would-be buyers are also major impediments to new construction.

How long will Australia's housing undersupply continue?
Construction material cost escalations are slowing; however, labour shortages persist. The cost of new housing typically comes at a premium compared to existing homes. Still, that premium is currently much larger than is typical and is discouraging people from buying new properties.

While we may see a moderate lift in new housing construction in 2024, it is hard to imagine a significant climb given the heightened material, labour and interest costs hampering the sector.

As investors leave the market, will new investors replace them?
Since the onset of the pandemic, many investors have exited the market, and we continue to see a heightened volume of investor-owned properties listed for sale.

While some investors were exiting the market, new investors were returning across 2023.

The likelihood of a more stable interest rate environment in 2024, the increase in tax-deductibility with interest rates at their highest level in 12 years and the ongoing increase in rental prices are expected to see property investment become a more attractive prospect in 2024, particularly as home price growth slows.

While it’s unlikely that enough investors will enter the market to offset that selling, we expect investor activity to strengthen throughout the year.

What will happen to first-home buyers?
Although the number of first-home buyers purchasing is well below the recent highs experienced during the pandemic, first-home buyer activity has lifted throughout 2023 and is above its long-term average.

In most instances, the cost of servicing a mortgage will be greater than renting. However, the state of the rental market is expected to drive more renters to want to purchase their own homes, especially as mortgage rates stabilise.

As renting becomes more expensive, first-home buyers can push into homeownership.

Of course, only certain renters can transition to home ownership. However, the lure of cost certainty and the security of owning your home is expected to be attractive.

Several assistance schemes are available at the federal and state levels, so don’t be surprised if first-home buying activity strengthens further in 2024.

21/12/2023

⚡️ Finance Update
1. Financial conditions in Australia are currently restrictive, with household debt payments as a share of disposable income increasing significantly. However, payments for personal credit remain low due to decreased use of personal credit since 2008.

2. New housing loan commitments have increased, driven by investors and first-home buyers, but are still below their peak levels. Extra payments into borrowers' mortgage offset and redraw accounts have decreased compared to pre-pandemic levels.

3. Market expectations for the cash rate indicate a 40% chance of a further increase but some chance of a reduction by late 2024.

4. The Reserve Bank of Australia is considering its approach to reducing holdings of government bonds purchased during the pandemic. The current approach is to hold the bonds until maturity, which will be actively considered given the Bank's exposure to interest rate risk.

5. The Board left the cash rate target unchanged at this meeting, as the data did not warrant a revision to the outlook. The Board will continue to monitor economic data and risks to determine if further tightening of monetary policy is required to achieve the inflation target.

17/12/2023

CONSUMER CONFIDENCE
ANZ-Roy Morgan Consumer Confidence jumped 4.4pts to 80.8 this week after the RBA left interest rates unchanged at last week’s final meeting for the year. However, despite the increase, Consumer Confidence has now spent a record 45 straight weeks below the mark of 85. Consumer Confidence is now 2.1pts below the same week a year ago, December 5-11, 2022 (82.9) and nearly 3 points above the 2023 weekly average of 77.8.

Looking around the States, Consumer Confidence was up in most States, including New South Wales, Victoria, Queensland, and Western Australia, but down slightly in South Australia.
The drivers of this week’s strong increase related to views on personal financial situations and the Australian economy’s performance, whereas buying sentiment was virtually unchanged.

Current financial conditions
Now, over a fifth of Australians, 22% (up 3ppts) say their families are ‘better off’ financially than this time last year (the highest figure for this indicator for over nine months since February 2023) compared to a slim majority of 51% (down 6ppts) that say their families are ‘worse off’.

Future financial conditions
Looking forward, nearly a third of Australians, 31% (down 1ppt), expect their family to be ‘better off’ financially this time next year, while 33% (down 3ppts), expect to be ‘worse off’ (the lowest figure for this indicator for over ten months since January 2023).
Current economic conditions

A slightly increased 9% (up 1ppt) of Australians expect ‘good times’ for the Australian economy over the next twelve months (incredibly, this is the highest figure for this indicator for over 18 months since May 2022 – just after the RBA first raised interest rates) compared to over a third, 36% (down 3ppts), that expect ‘bad times’.

Future economic conditions
Net sentiment regarding the Australian economy in the longer term has improved this week with 13% (up 2ppts) of Australians expecting ‘good times’ for the economy over the next five years compared to under a fifth, 18% (down 4ppts), expecting ‘bad times’ (the lowest figure for this indicator for over nine months since early March 2023).

Time to buy a major household item
Buying intentions were virtually unchanged this week with 20% (unchanged) of Australians saying now is a ‘good time to buy’ major household items while a slim majority of 53% (down 1ppt), say now is a ‘bad time to buy’.

ANZ Senior Economist, Adelaide Timbrell, commented:
Block Quote
"Homeowners seem to be buoyed by rising home prices and the stable cash rate after the RBA left the cash rate on hold last week. ANZ-Roy Morgan Australian Consumer Confidence rose to its highest since February 2023 driven by stronger confidence among homeowners (both indebted and outright owners). Inflation expectations are at their second-lowest result in six months, and confidence about the economy has improved markedly. Economic confidence about the coming year hit its second-highest level since February and confidence about the economy over the five-year horizon hit its best result since March. But a large share of households still do not think it is a good time to buy a household item, despite seasonal discounting."

14/12/2023

HOME PRICES TO SOAR IN 2024
Home prices are set to break new records in 2024, with three cities tipped to outperform all others.

Stage three tax cuts, soaring population growth and lagging housing supply could see national property prices rise to 4% over 2024 and as much as 8% in some capital cities, a new report predicts.

Home prices across the country are expected to grow between 1% and 4% over the next 12 months, slightly slower than the 5.5% pace of growth recorded in 2023.

Property prices reached new record highs in November after rising for an eleventh consecutive month.

Trends that fuelled prices in 2023 will likely persist, underpinning price growth next year despite higher interest rates.

Prices hit yet another record high in November. The volume of stock available for sale remained persistently low while buyer demand increased significantly, fuelled by a housing shortage and strong population growth.

Over the 12 months to March 2023, Australia’s population increased by 563,205 persons – the equivalent of the entire population of Tasmania.

Due to the effect from the middle of next year, the planned stage three tax cuts could also fuel demand for housing as higher-income earners get a boost to their take-home pay. These factors will likely lead to further price gains.

While price growth is tipped to slow nationally, forecasts vary widely across states and territories as imbalances between supply and demand intensify.

In Sydney and Melbourne, where total listing volumes are now above the decade average, price growth is more subdued than in Brisbane, Adelaide and Perth, where supply remains extremely tight.

In Brisbane, Adelaide, and Perth, total listings were more than 30% below their November decade average. By comparison, total listings in Sydney and Melbourne are 1.6% and 10.8% above their long-term average, respectively.

Total listings are up from a year ago but are 23.9% below their November decade average.

Sydney prices are forecast to rise between 2% and 5% in 2024, down from a strong 8.3% in 2023. Melbourne is expected to see growth of between 1% and 4%.

Perth (+5% to +8%), Adelaide (+4% to +7%), and Brisbane (+3% to +6%) are likely to lead home price growth across the country after consistently recording strong gains in 2023.

Prices could ease in the smaller capital cities of Canberra (-1% to +2%), Hobart (-2% to +1%), and Darwin (-3% to 0%).

Looking at home prices in 2024, it’s important to consider the current market trajectory, where interest rates could head, what could happen with housing supply, and the impact of the interest rate hikes that have already occurred.

Lagging supply is expected to drive growth in Perth, Adelaide and Brisbane.

The Reserve Bank of Australia handed households an early Christmas present on Tuesday after leaving interest rates on hold at its final meeting of the year.

But the previous 13 rate hikes between May 2022 and November 2023 have seen mortgage repayments surge by 62% on average and reduced borrowing capacity by more than 30%.

AMP chief economist Shane Oliver estimates that a variable rate borrower with a $600,000 mortgage will have seen around $17,000 a year added to their mortgage payments.

“Most may have sought a better deal but even if they got a 0.5% discount on their mortgage rate it would now amount to an extra $14,900 in extra mortgage payments,” Mr Oliver said.

“It’s hard to see this not having a big impact on household spending. Particularly given the RBA’s analysis based on variable and fixed borrowers, around one in seven households with a mortgage were already cash flow negative in July, which will likely be higher by now.”

Rate cuts expected in 2024
Data from the Australian Bureau of Statistics on Wednesday revealed the household savings rate fell to 1.1% in the September quarter, its lowest level since December 2007 and down from the pandemic high of 24%.

AMP estimates the household savings rate will turn negative over the coming quarters as households continue to run down buffers accumulated during the pandemic.

CBA head of Australian economics Gareth Aird said the savings rate is now comfortably below its five-year pre-pandemic average of 6%.

“The data reflects a stretched household sector that at the individual level is cutting back on spending due to the effects of elevated inflation, rising interest payments and a big lift in tax payable,” he said.

It’s the latest round of economic data to come in softer than expected, with inflation easing to 4.9% over the year to October, raising bets that the RBA may be forced to start cutting rates next year.

Interest rates are widely expected to have already peaked.

CBA expects the first rate cut to occur in September 2024.
“A month ago the risks to our call were skewed towards rate cuts starting at a later date. But the run of both domestic and international data over the past month suggests the risks are now more evenly balanced,” Mr Aird said.

Economists at ANZ also see rates on hold until it the RBA begins easing at the end of next year.

But NAB expects one more rate hike in February, which would take the cash rate to 4.6%, before remaining on hold until late 2024.

13/12/2023

13th RATE RISE "TIPS BUCKET" ON HOUSING BUCKET

Australia’s housing market continues to slow after the Reserve Bank of Australia’s (RBA) 0.25% interest rate hike last month.
CoreLogic’s daily dwelling values index has lost momentum following the RBA’s Melbourne Cup Day rate hike, led by Melbourne and Sydney.

CoreLogic’s preliminary auction results over the weekend also continued to soften, recording a clearance rate of just 66.9%, down slightly from the prior weekend (67.0%, revised down to 60.7% at final figures):

Indeed, final clearance rates have fallen sharply across Sydney and Melbourne since peaking in May this year.

Sydney’s auction clearance rate fell from 73% in May to 63% in the first weekend of December, whereas Melbourne’s clearance rate fell from 70% in May to 58% in the first week of December.
In turn, the combined capital city clearance rate has been dragged down from 71% in May to 61% in the first week of December:

Over the weekend, leading Sydney real estate agent and auctioneer, Tom Panos, said that that RBA’s 13th rate hike had “tipped the bucket” on the market, after only two out of nine of his auctions sold:

Panos’ sentiment certainly seems to be reflected in the data, at least as it pertains to Sydney and Melbourne.

The RBA’s rate rises finally appear to have tipped demand at the same time as listings levels are growing:

That’s a recipe for house price corrections for those two markets, which could pull values down nationally.

12/12/2023

ANZ - ROY MORGAN CONSUMER CONFIDENCE
Roy Morgan's Consumer Confidence was virtually unchanged at 76.4 this week. Consumer Confidence has now spent a record 44 straight weeks below the mark of 85. Consumer Confidence is now 6.3pts below the same week a year ago, November 28 – December 4, 2022 (82.7) and over 1 point below the 2023 weekly average of 77.8.

Looking around the States, Consumer Confidence was up in Victoria, Queensland and South Australia but down in New South Wales and Western Australia.

Current financial conditions
• Nearly a fifth of Australians, 19% (down 1ppt) say their families are ‘better off’ financially than last year compared to a growing majority of 57% (up 2ppts) that say their families are ‘worse off’.

Future financial conditions
• Looking forward, nearly a third of Australians, 32% (up 5ppts), expect their family to be ‘better off’ financially this time next year, while 36% (down 4ppts), expect to be ‘worse off’.
Current economic conditions

• An unchanged 8% of Australians expect ‘good times’ for the Australian economy over the next twelve months compared to almost two-fifths, 39% (down 1ppt), that expect ‘bad times’.
Future economic conditions

• Net sentiment regarding the Australian economy in the longer term is down this week, with 11% (down 1ppt) of Australians expecting ‘good times’ for the economy over the next five years compared to over a fifth, 22% (unchanged), expecting ‘bad times’.

Time to buy a major household item
• Buying intentions declined this week after the end of the Black Friday sales period with 20% (down 3ppts) of Australians saying now is a ‘good time to buy’ major household items while an increased majority of 54% (up 5ppts), say now is a ‘bad time to buy’.