Market outlook points to steady recovery in 2024: Knight Frank

Across the country, values fell the most in Sydney (down 10.9 per cent) and Melbourne (down 5.6 percent), while prices ended the year significantly higher in Adelaide (up 10.2 per cent).  

Across regional Australia, values were higher across the board, led by South Australia which saw a record growth of 22.4 per cent.

Both the housing and the unit sector fell during the period, witnessing a 5.0 per cent and 4.3 per cent decline, respectively. 

Despite the weakness in both sectors, the report noted that houses in regional areas bucked the trend, with regional house values rising by 13.1 per cent.

The report emphasised that since May 2022, the lending environment has become less conducive to the growth of the property market, and continues to weigh down on its expansion.

“Every month, the Reserve Bank of Australia has met since May 2022; a cash rate increase has been announced with mortgage rate rises following. As a result, new household loan commitments continue to trend downwards due to borrowing capacity and falling housing market sentiment,” the report stated. 

With every monthly mortgage rate increase, the report noted that sentiment has weakened given the lower borrowing power and as a result, residential values have contracted. 

The negative impact of rate hikes on the Australian property market goes beyond price growth, with the report highlighting how market activity has been subdued by the resulting negative sentiment. 

The report showed a 22 per cent decline in Australia’s mainstream residential sales volume in 2022. This slowdown in activity is also evident in the average days-on-market data, with the time taken to sell a home increasing by four days, now averaging 68 days on the market. 

A closer look at the data showed apartments are taking longer to sell, with an average of 78 days on the market, while regional houses are taking 65 days, and city houses are taking 64 days.

While the media are in view that the Reserve Bank tempered its hawkish stance at the end of its March policy meeting by stating that “further tightening” of monetary would be needed going forward — a dovish reference compared to its previous use of the term of further “rate increases” — Knight Frank highlighted that the market should brace for more mortgage pain to come. 

It cited a recent forecast from Oxford Economics, which estimates the official cash rate will be reduced towards a target of 3.53 percent by the end of 2023. 

With this, the report forecasts residential values will decline by a further 7 per cent increase by the end of 2023. 

Brisbane is estimated to see the biggest capital growth contraction during the period with a 8 per cent decline, followed by Sydney and Melbourne, with property values in the cities estimated to both fall by 7 per cent.

The report highlighted that smaller cities will be less affected by price contractions due to their “better relative value and rental for investors.”

Perth and Adelaide are expected to be the strongest performers during the year, with a decline of 5 per cent and 4 per cent respectively.  

Meanwhile, Hobart, Canberra and Darwin are all estimated to record a 6 per cent decline during the period. 

Despite the gloomy outlook for the current year, the report forecasts the market will stage a rebound in 2024 as population growth and immigration will continue to drive demand across Australia’s residential markets. 

It also underlined that the ongoing chronic undersupply of rental homes and the shift in investment perspectives will also keep on shaping the market dynamics in the coming years.

These factors will underpin an expected 3 per cent growth in national property values in 2024 and a further 5 per cent in 2025, according to the report.