HOME OPEN: Tight supply drives solid price gains

Matthew Hassan
08:30am June 06 2024

A beachside suburb in late afternoon sunlight. (Getty)

Property prices have risen at a reasonable pace so far this year, with tight supply continuing to underpin the market, although performances are more clearly diverging across capital city markets.

Westpac economists are sticking with their forecast for dwelling prices to rise by 6 per cent nationally this year, followed by 4 per cent in 2025, easing from 10 per cent growth in 2023.

Perth continues to be the hottest market in the country, closely followed by Adelaide and Brisbane, while growth is more subdued in Sydney and Melbourne, and patchy across the smaller capital cities and regional areas.
 

Westpac’s mid-year Housing Pulse report finds a continuation of the themes we saw at the start of the year:

• Consumers remain torn between poor affordability, weighing heavily on assessments of whether now is a good time to buy, and positive price prospects.

• 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 per cent on the same period a year ago but are still relatively low by historical standards.

In Sydney, affordability is a major challenge with high prices causing some buyers to step back. However, limited supply is helping auction clearance rates to hold up relatively well.  

On-market supply has been a key point of difference in the Melbourne market with state government tax changes triggering a surge in investor selling in the second half of 2023 that created an overhang of stock that has yet be absorbed.

We expect price growth in the Sydney market to be 5 per cent this year and Melbourne prices to grow by just 2 per cent – both below the nationwide average. 

In the latest report, we took a closer look at the rental market, which remains tight by historical standards. Nationally, the average rental vacancy rate since 1980 has been 2.75 per cent. Currently all major capital cities have vacancy rates of 2 per cent or lower. 

The good news is the extent to which low vacancy rates are translating into higher rents appears to be moderating. Across the major capitals, annual rental price growth peaked at over 20 per cent 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 continue slow as movements in foreign student flows start to 'normalise' and a tightening in visa criteria exerts an impact. Growth is expected to slow from 2.5 per cent in 2023 to 2 per cent in 2024 and 1.5 per cent in 2025.

To read the full report from Westpac’s economics team, visit WestpacIQ. 

Matthew Hassan

Matthew is a senior economist with Westpac. His specific areas of expertise are housing markets and the Australian consumer sector. Matthew’s research has been instrumental in shaping Westpac’s views on the Australian economy, including recent calls on official interest rates. His research has provided important insights into housing market developments and the behaviours of the Australian consumer. He is the author of Westpac’s monthly Red Book report, regards as essential reading on the consumer sector. Before joining the Westpac team in 2007, Matthew held senior positions with leading economic consultancies in Australia and New Zealand.

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