Property market in recovery phase, house prices tipped to continue rising: Domain Forecast Report

The property market across Australia is now in a strong recovery phase, and prices will continue to rise – as much as 9 per cent in Sydney – throughout the next financial year, a landmark new Domain report has revealed.

House prices in Sydney, Adelaide and Perth will hit record highs, it predicts, with unit prices in Brisbane, Adelaide and Hobart also potentially smashing existing records. 

In addition, the Domain Forecast Report says the markets in all those cities may fully recover from the 2022 downturn by this time next year.

“We’ve already started to see prices rising this year, and we’re expecting that to continue, but we’re expecting the recovery to be slow and steady,” Domain chief of research and economics Dr Nicola Powell said. 

“Sydney is set to be the one outperformer with the strongest rate of growth, but there will be a lot of different dynamics going on with both push and pull factors, which can have very different impacts. The biggest factors, however, are the continuing lack of supply of homes on the market and the rise in population, especially with the boost in migrant numbers to relieve skill shortages.”

Interest rate hikes are expected to be close to an end, which will further boost the market, but the downward pressures include the number of people facing the cliff’s edge of variable rate rises after their fixed rates expire.     

“Affordability will eventually contain the rate of growth with people able to borrow less and being unnerved by higher inflation,” Powell said. “So, while it won’t be smooth sailing, the outlook is much more optimistic.”

National president of the Real Estate Institute of Australia Hayden Groves welcomed the report and its findings, saying that they generally aligned with their expectations of the year ahead. 

“We are optimistic about prices and generally anticipate they will continue to rise over the next 12 months, because we still have the undercurrent of the shortages of supply,” he said. “But there is other good news in that a lot of the construction started during COVID is now starting to complete.”

House and unit price forecast to the end of FY24

Sydney

The recovery is set to be strongest in Sydney, the Domain report reveals, with house prices rising from 6 per cent to 9 per cent, and prices for units by between 2 and 5 per cent. 

That means house prices will be at a record high by the end of the next financial year with a fresh median of $1.62 million to $1.66 million – above the last peak of $1.59 million struck in March 2022. It will make up the record steep downturn of 9.6 per cent from peak to trough.

Unit prices will have a slower recovery, the forecast says, and will still end up $5000 to $28,000 lower than December 2021’s record high median of $802,503.

“We see the recovery being the fastest in Sydney, with prices bouncing back and up, in the case of houses, to new levels,” Powell said. 

McGrath Real Estate agent Simon Exleton on Sydney’s eastern beaches said: “I would certainly agree with that from what I’m seeing on the ground. There’s still such high demand from buyers and not much stock, so prices will continue climbing.”

Melbourne

Of all the capital cities, Melbourne is facing the slowest recovery, with house prices either staying the same – but not dropping – or rising at the most by 2 per cent. Unit prices, however, are likely to continue their slide, falling 2 per cent or, in the most favourable account, increasing by just 1 per cent. 

“This means Melbourne house prices will remain lower than the record high of $1.094 million achieved in December 2021,” Powell said. “Even at the upper forecast, they will only recoup about a third of the value lost during the downturn, making it the slowest recovery of the past 30 years.”

Unit prices will also remain lower than the record high of the same time, of $598,892. At best, only half of the value lost during Melbourne’s deepest and longest unit price downturn will be recouped. 

Marshall White director Justin Long agrees it’s more likely that house prices will rise rather than fall. “That’s based on the diabolically low level of stock at the moment and there’s more positivity in the market now,” he said.  

Brisbane

House prices in the Sunshine State’s capital are set to rise between 1 and 4 per cent, according to the Domain Forecast Report, which will leave them close to a record high by this time next year, perhaps only $3000 off the mid-2022 record of $858,511. 

But the recovery will be more muted than the sharp 6.1 per cent fall from peak to trough that happened from that record time to March this year. At the 4 per cent forecast, it will recover $50,000 of the $53,000 lost.

“Brisbane unit prices will be more stable than houses, with a growth rate of between 0 and 1 per cent,” Powell said. “But with the growth in prices we’ve already seen in the first half of 2023, they’ll set a new record by July 2024, $16,000 higher than the September 2022 record of $457,750.”

At Belle Property in Brisbane’s West End, agent Bettina Jude says these forecasts accord with what she’s seeing daily too. “Our markets have been very buoyant and with not enough stock to satisfy demand, we’re seeing prices remaining strong despite interest rate rises. That’s the most true for houses at the moment, as there’s such a shortage.”

Adelaide

Adelaide house prices – which haven’t dropped at all during the eastern capitals’ downturns – are set to rise between 2 and 5 per cent over the next 12 months, with unit prices either remaining steady or rising 2 per cent, Domain predicts. 

This means the median house price will reach a record high, topping $800,000 for the first time. Unit prices, thanks to the price growth of the first half of this year, will also be likely to set a record. 

“Adelaide will have pretty modest increases, but this suggests it will avoid any fallback in price,” said Powell. “That’s particularly poignant as Adelaide is always seen as a quiet market, but it’s achieved so much recently.”

Once interest rates stabilise, the sideways price movement will become upward growth, believes Matt Smith, director of Adelaide’s Klemich Real Estate. “Our stock levels at the moment are so very low and there’s so much pent-up demand,” he said. “We’ll see prices rising for 2024.”

Perth

With a forecast that house prices will grow 1 per cent to 3 per cent, Perth will be at a record high by July 2024, with the median price surpassing $700,000 for the first time. Unit prices are predicted to rise by the same range, but will still be $36,000-$43,000 less than its previous high of $422,181.

“This showcases the city’s continued strength and stability in its property market,” Powell said.

West Australia-based Groves also believes Perth is well positioned for the future. “I think it’s set to be a star performer because it’s so affordable, and the economy is so strong, which means it’s very attractive for new migrants,” he said. 

Canberra

House prices in the national capital are set to grow between 2 per cent and 4 per cent, according to the Domain forecast. Despite this, the median price will still be lower than the $1.17 million peak of June 2022 after the largest peak-to-trough fall of all the capital cities. Unit prices are likely to see growth of between 1 and 2 per cent.  

Hobart

Hobart will be the second strongest capital city after Sydney in terms of house prices, with growth of 3 per cent to 5 per cent – still not enough, however, to make up for the 2022-2023 fall in prices. Unit prices, on the other hand, could be at a new record high after a rise of 1 to 3 per cent, taking it to a record of just over $570,000 – $3000 more than September 2022’s historic high.