In ten year’s time?

Happy New Year.

Earlier this month data released by CoreLogic showed that dwelling values across Australia rose by 67.5% over the past ten years to December 2023.

And despite forecasts to the contrary, last year’s dwelling values rose by 8.1%, on average, across the nation.

Some urban areas did better than others.

My first table outlines last year’s performance by major urban area.  Perth currently leads the pack, followed by Brisbane, Sydney and then Adelaide.  The other capitals are slowpokes.

Much of the difference is due to supply versus demand and rising unaffordability.

For example, whilst Melbourne attracts its fair share of overseas migration, and hence has a high level of demand, new dwelling supply across Victoria is better than in Sydney and across southeast Queensland.

This table also shows that the median dwelling value across Australia currently sits around $758,000.

The release of such results, and especially at this time of the year, has pundits taking a stab at what dwelling prices are likely to do over the next ten years.

Whilst there has been a wide range of predictions, the consensus is that dwelling values are likely to increase by a similar amount – in this case by two-thirds or around 66% – between now and 2033.

That would lift the median dwelling value to $1.26 million by 2023.

All the capital cities, except Darwin, would have a median dwelling value over $1 million and the median regional dwelling price would also be just over seven figures (excluding of course the decimal point!)

But is such growth realistic?  Is it likely to take place?

Well to better comprehend the future it is often said you need to understand the past.

My second table outlines dwelling price growth and inflation by year over the past decade.

Obviously, it shows that dwelling values rose by 67.5% in total since 2013.  By comparison, the general price of things (i.e., inflation) rose by 29.1% over the same period.

So, when removing the cost of money, Australian dwelling values increased – in real terms – by 56.8% over the past ten years.  In essence they rose by about 50%.

This table also shows that 2021 was a standout year, with median dwelling values lifting by 24.5% – or by 21.5% when removing inflation – for that year.

So, some 30% of the Australia’s past decade dwelling price growth performance was due to the Covid year and the associated plunge in interest rates and government philanthropy.

I think that any forecast needs to remove 2021 out of the modelling.  Or in my case the toss of the durrie at the dart board.

Looking ahead

As I have said in several of my recent posts, real estate is all about supply and demand.

At present demand (i.e., sales) is steady when compared to the past ten year average, whilst supply (stock listed for sale) is down, some 20% against the long term trend.

We also have an undersupply of rental stock and new builds.

Unless things go really pear-shaped then, for mine, Australian housing values are likely to rise during 2024 and 2025.  This growth is likely to be around 5% per annum.

The disparities between locations, I think, will lessen in coming years as well, especially as our immigration levels set to settle down to the longer term average and new housing supplies come through.

For mine inflation is likely to be stuck between 3% and 4% for some time, so there is very unlikely to be a lot of real price growth.

Ironically, in an increasing uncertain world, Aussie’s will likely invest even more strongly in real estate.

So it could be that dwelling values rise by 50%, in total, over the next decade but in real terms this increase is likely to fall between 15% to 20%.

That’s my stab at is.

Moreover, if this eventuates it will have an impact on the housing market.

Investors will need to focus more on rental returns and/or improving their dwelling asset, and more intending owner residents will probably choose to rent, particularly if they can secure long term tenure.

Some themes for this year’s Missive posts.

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