As we navigate through the early stages of 2024, the Australian property market continues to present a complex yet promising landscape for investors and landlords. With the recent data from CoreLogic signaling a national housing upswing, January has seen a 0.4% increase in the National Home Value Index. However, the picture isn't uniform across the board, with Melbourne showing a slight dip by 0.1% and Brisbane experiencing robust growth of more than 1%.

Source: CoreLogic 

Indeed, Brisbane continues to be the best performing eastern seaboard market, whilst the pace of growth in Sydney is slowing, and Melbourne continues to lag the other cities, both in recent months, but even more so over a three-four year period (see chart below). 

Source: CoreLogic 

 

The Divergence Between Houses and Units

Houses continue to have significant outperformance over units. Since the start of the most recent upward growth cycle (approximately 12 months) capital city house values have jumped 11.0% while unit values have increased 6.9

The number of home sales was slightly above average in the past three months with CoreLogic estimating that 115,241 dwellings were sold in the three months ending January; 11.9% more than the same period last year and 0.5% more than the average of the previous five years for this time of the year. So despite an increase in stock being brought to market, it doesn’t yet appear that this is having adverse impact on prices.  

Sales Market vs. Rental Market Dynamics

The sales market has been vibrant, with the number of home sales in the past three months slightly exceeding the average, suggesting a healthy demand that continues to support price stability. On the flip side, the rental market has seen an acceleration, particularly in January, as we enter a traditionally stronger quarter for leasing activities. The national rental index showed a notable increase, with house rents rising more significantly than unit rents across the capitals.

Melbourne, interestingly, has emerged as the best-performing rental market, partially catching up from the downturn experienced during the COVID-19 period. This revival in rental values, especially in Melbourne, contrasts with the city's sales market performance, highlighting the dynamic and often unpredictable nature of real estate markets.

Rental Growth

Rental values increased at a faster rate in January as the leasing markets enter the typically stronger first quarter of the year. The national rental index showed the biggest monthly increase since April with rents rising by 0.8% in January, after a 0.6% increase in December. Across the combined capitals, house rents increased by 2.5% compared with a 1.4% increase in unit rents, with a bigger quarterly increase in house rents evident in every capital. There’s also a reverse trend of what’s happening in the Sales market, with Melbourne being the best performing rental market (in part due to it still playing catch-up from the covid period). The below chart shows the median rental price growth between Melbourne and Brisbane, with Melbourne’s pace of growth being 2.8% over the last quarter, or 11% annualized, which is slightly stronger than Brisbane being 2.5% over the last quarter, or 11% annualised. The level of price growth being witnessed in both markets is still well above long-term trends and is largely explained by persistent record low vacancy rates (~1% in both cities - see below chart).

 

Source: LongView Data & Analytics

 

There has been slowdown in unit rental growth vs. houses which coincides with the a likely peak in net overseas migration around the middle of last year, This has been especially noticeable in Sydney and Melbourne, the two cities that attract the largest share of net overseas migration. With migration expected to decline from record highs last year, we could see less upward pressure on rents which usually attract new migrants, both in CBD’s but also new housing estates on the fringes.  

The Impact of Migration and Economic Indicators

Migration trends and economic indicators, such as inflation rates and interest rate expectations, continue to play a crucial role in shaping the property landscape. The expected normalization in migration patterns and the easing of inflation to 4.1% in December are likely to influence both the rental and sales markets. Lower inflation and the anticipation of stable or reduced cash rates could bolster consumer confidence, potentially easing the cost of living pressures and supporting the property market.

Interestingly, our buyers advisory team are witnessing stronger price growth in Melbourne, a key driver behind this surge in activity is the recent news of lower inflation, coupled with growing confidence that rate increases will not persist. This positive economic outlook has injected a renewed sense of optimism among prospective buyers, leading to a noticeable uptick in attendance at open homes and heightened levels of buyer enquiry. Compared to the same period last year, buyer interest has seen a significant increase, indicating a palpable shift towards a more buoyant market sentiment. Time will tell if this is a New Year bounce or if it lasts into the year. Our Brisbane advisory team is witnessing a similar trends, albeit the Brisbane market has been strong for close to 12 months and only had a small down-ward period.

Challenges and Opportunities for Rental Providers

For landlords, this evolving landscape presents a unique set of considerations and opportunities. Among the most pressing issues in the current market is mortgage stress—a growing concern for many property owners. With financial pressures mounting, some landlords are contemplating the sale of their investment properties, not out of desire but necessity, due to the challenge of keeping up with mortgage repayments.

This is why LongView has been working on unique solutions like HomeFlex to help solve the housing crisis in Australia. 

HomeFlex is a debt-free equity solution, enabling property owners to unlock the equity in their homes without the need to sell. HomeFlex provides immediate financial relief, alleviating mortgage stress and offering landlords the flexibility to retain their investment properties.

As we navigate through this promising year, LongView remains committed to supporting our landlords through innovative solutions like HomeFlex. By addressing the immediate challenges of mortgage stress and offering a pathway to sustain and grow your investment, we're here to help you make the most of the opportunities this buoyant market presents.

The landscape of property investment is evolving, and with LongView by your side, you're well-equipped to navigate this journey with confidence and strategic insight. We know that market knowledge is always an important consideration in any investment decision. Yet, we also know that you buy and sell a single property, and that every property is unique and has different fundamental investment qualities. So as always, regardless of where you are at in your property journey, we encourage you to get in touch and seek assistance from our team of professionals, whether that is advice on your tenancy arrangements, whether you should hold/sell your property/ies, advice on new purchases or more information on LongView’s Investment Funds or Buying Boost and HomeFlex shared equity offerings. We look forward to working with you and your families in 2024.