Domain’s Forecast Report for the 2023–24 financial year is here, and according to its predictions, the next twelve months looks sunny with a chance of record-breaking growth.
The main take away is that Australia’s housing market will continue its redemption arc after making an unexpectedly speedy recovery from the short and sharp 2022 downturn—the steepest Sydney had ever experienced with house prices falling 9.6% from peak to trough over three consecutive quarters. In fact, if their forecast proves true, house prices will hit a new record high in Sydney, Adelaide, and Perth over the next year.
Domain’s crystal ball is powered by a “Bayesian Structured Time Series (BSTS) model” to forecast house and unit median prices, while also taking factors like population growth, construction headwinds, and borrowing power into consideration.
By the end of next financial year, the market’s recovery is forecast to be well-established, with unit prices predicted to have a more modest growth than houses. In Sydney, house price growth is forecast to increase by 6-9%, and units by 2-5%. If such house growth eventuates, this will push prices to a new record high, with the median hitting between $1.62 million and $1.66 million, overtaking March 2022’s peak of $1.59 million.
Sydney’s unit prices will take a more slow-but-steady approach, with a 2-5% growth landing median prices roughly $5,000 to $28,000 lower than the record high of $802,503 in December 2021.
While Sydney looks set to lead the pack in gains, other states should experience significant house price growth—Hobart 3-5%, Adelaide 2-5%, and Canberra 2-4. Sluggish growth is projected in Melbourne for both houses (0-2%) and units (-2-1%), as well as in combined regionals across NSW, VIC, and QLD (1-3% and 0-2% respectively).
A huge force fuelling housing demand and pushing property prices higher is Australia’s incredible population growth. Since covid border closures created a severe skills shortage, Australia has increased temporary and permanent visa grants in a move to mitigate the issue.
Net overseas migration is estimated to be at a record high over the current financial year and next. As new migrants usually need to rent or buy upon arrival, Domain estimates that almost 300,000 additional dwellings will be needed to house the growing population as immediate pressure is placed on Australia’s housing demand.
According to Domain’s report, other strong influences on the property market’s year ahead include the unprecedented headwinds experienced by the construction industry in the past few years. Spurred by the pandemic, building costs have soared as the industry has had to deal with skills shortages and supply chain disruptions. Input costs to build a house have risen an eye-watering 32% since March 2020, and these higher construction costs could prompt higher property prices. However, high interest rates, low borrowing power, and stagnant wage growth will mean that affordability will limit the pace of growth.
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