If you’re a recent buyer who’s struggled with the fall in house prices this year, take heart – forecasters are united in their view that things will pick up over 2024.
But by how much is up for debate.
Independent economist Tony Alexander said he expected prices to jump by 10% next year.
“This year, they won’t rise much at all – the cycle is turning at the moment and stuff is going to go all over the place.
“Next year, the combination of interest rates falling – sometime – strong population growth, falling construction and easing of credit criteria recently… there’s a two-and-a-half-year queue of people waiting to buy and they will be activated by a few of those things.”
He said it was hard to pinpoint when exactly the lift would begin in earnest.
“I’d expect prices will be drifting up over the second half of this year, some months positive and some negative – I’m just assuming a reasonably steady thing throughout the year. The key thing is interest rates are going to play a role but I don’t have the foggiest idea when the Reserve Bank is going to start easing monetary policy.”
Kelly Eckhold, Westpac chief economist, said the bank expected an 8% increase in house prices in 2024.
The main factor driving that was the expected impact of migration and population growth, he said.
“Historically there’s a one-year lag between when migration starts picking up and when you see it through house prices. We’ve incorporated a bit more of that cycle into the forecast. Previously, we had house prices tracking along with the general level of inflation which is probably a bit unrealistic given the quite exceptional population growth we are seeing now.”
He said there should be some interest rate cuts by the middle of next year. “As we get through the first half of next year, people should be gradually factoring that into their expectations as well.”
Prices were likely to increase modestly through the rest of this year, he said, and end the year 0.1% down on the same time in 2022.
“It’s encouraging that we have seen things reach a base and pick up. It gives the sense that things are on the right path.”
3% to 5%
Kelvin Davidson, chief property economist at CoreLogic, said he expected prices to rise between 3% and 5% next year, broadly in line with incomes.
But he said there was a risk prices could rise by more than that due to “animal spirits” in the market.
“Even though we’re not convinced that any reinstatement of mortgage interest deductibility (if it happens) would be a major game-changer – because mortgage rates would still be much higher than rental yields and many properties cashflow negative, it might drive a jump in sentiment amongst investors.”
But he said affordability was still stretched and mortgage rates were likely to remain higher for longer. There were also indications that the Reserve Bank was planning to introduce debt-to-income ratios early next year.
ANZ economists expect house prices to rise about 3% over the second half of this year but said by 2024 the reality of higher interest rates sticking around would set in. Rising unemployment and stretched affordability would drive a very subdued pace of expansion in house prices, they said.
Chief economist Sharon Zollner said interest rates were unlikely to drop until the end of next year.
“One thing I have learned in 25 years of macro forecasting is never underestimate the housing market’s ability to do something you don’t expect.”
But she said if house prices did shoot away, the Reserve Bank would not tolerate it and would probably lift interest rates in response.
She noted that house prices relative to incomes in the second quater of this year were about the same as they were before the pandemic. This ratio was very high relative to history.
Brad Olsen, chief executive at Infometrics, said he questioned how much higher house prices could go.
“The average household buying today would have to spend about half their average household income to service the first year’s mortgage repayment.
“That’s what is restricting us from going ‘they’ll just massively jump up again’… if you are having to pay on average half the entire household income to service a mortgage, can it really go to 55% or 60%?”
He said many people were also unable to get finance at current interest rates.
Why the difference in forecasts?
Eckhold said the wildly differing views on what could happen depended on the extent to which people expected interest rates to affect house prices.
“There’s an element of conservative with respect to forecasting and a lot of uncertainty about the duration fo the migration cycle, for example. And the weakening in the labour market, which everyone expects, but perhaps to different degrees.”