The last cylinder has just fired. The boom is roaring now.
The property market has turned the corner and prices are steadily moving higher.
I’ll expect they’ll grind a bit through the rest of the year, but by 2024 we will have found that the boom is firing on all cylinders, and price rises will be scorching.
I’ve talked about all of these drivers before. But let me spell out what I think are the six cylinders of the boom in 2024:
1. Rate Cuts
The RBA surprised us last week, but most economists expect that the economy will be slowing to such an extent that the RBA will be forced to cut rates in the closing months of the year.
Bond markets are currently pricing in 50 basis points, but I’m not sure we’ll get that by Christmas. But there’s a good chance we’ll have that by the end of the March quarter 2024.
2. Credit Easing
There’s been a bit of talk recently about APRA cutting its mortgage serviceability buffer from 3%. Everyone seems to like the idea, so it will probably happen. This will add to borrowing capacity and demand.
3. Immigration
Record immigration will increase housing demand, both to buy and rent.
4. Rental gains
The rental market will tighten further, prompting more people to purchase. As rental prices rise, that increases the return on property assets, pushing demand up even further.
5. Construction Crunch
Housing construction will fall, owing to builder collapses and ongoing materials price increases. This will make the projected shortage in the housing market even worse.
6. Foreign buyer demand
This last one is fresh on the radar, and wasn’t something I expected to see so soon.
But basically, property insiders report that there’s been a significant pick up in foreign interest in Aussie property, particularly out of China.
NAB’s Q1 Residential Property Survey was released late last week with real estate agents reporting increased sales to foreign buyers.
In new housing markets, foreign buyers’ share of sales rose to 7.9% in Q1 (5.2% in Q4’22), whereas they rose to 3.8% (2.8% in Q4’22) in established markets:
Daniel Ho, co-founder and group managing director of Chinese real estate portal Juwai IQI, recently said that for the first time, Australia is the most popular country for Chinese homebuyers as measured by enquiries made on the site since the beginning of last year.
“In January, Chinese buyer inquiries for Australian real estate surged by 24% compared to December, due to the announcement that (Chinese) borders would be reopening.”
Executive partner at Plus Agency, Fiona Yang, also said Chinese demand for Australian property was booming.
“We have five times more Chinese buyers than before, and they want to buy quickly.
“The pandemic-related uncertainty is passed. The closed borders are open, rents are hot, and these buyers are fed up with three years of lockdown. They are committed to Australia. They are ready to make quick decisions on real estate”.
So foreign buyers are back. The sixth cylinder just fired.
Look out folks. 2024 could be a wild ride.
DB.