Australia’s property market is set for a reality check in early 2024 as high interest rates and a slowing economy hit buyers hard, according to new forecasts predicting a shift in fortunes.

The latest data from analysis firm SQM Research, published on Tuesday, has called time on the spectacular rebound in property prices seen throughout 2023, with managing director Louis Christopher saying economic gravity will finally start to hit home owners and home buyers.

Christopher said that another year of strong population growth and an ongoing shortage of new dwellings will limit price falls, but it won’t be enough to offset higher unemployment and rates.

“The interest rate rises of 2022, 2023 and possibly 2024 will finally start to bite home owners and would-be home buyers alike,” he said.

“Distressed selling activity is expected to jump, especially in New South Wales where we are already starting to see a new trend upwards in that data set.”

Nationwide, capital city average property prices are predicted to fall up to one per cent, though the forecasts include a range that could also see prices rise by as much as three per cent over 2024.

Property prices across Melbourne could fall as much as three per cent under that same scenario, while Sydney could see a moderate correction of up to four per cent, according to the SQM data.

That pales in comparison to the projections for Canberra though, with prices forecast to fall as much as eight per cent on the bottom end, or grow up to four per cent in a far more optimistic case.

Other smaller capitals could perform better, with SQM’s central scenario forecasting property prices growth of at least five per cent in Perth and four per cent in Brisbane next year.

Even in a less optimistic scenario where interest rates rise above five per cent, SQM doesn’t expect prices to fall in Brisbane or Perth in 2024.

The cities of Perth and Brisbane are the only cities expected to record price rises, with each respective market driven by a tailwind of a recovering Chinese economy which is anticipated to see strong
demand for base commodities such as iron ore,” SQM said.

Property prices rebound to turn

The national projections represent a big change from this year, which has seen a huge rebound in property prices across almost the entire country despite ongoing interest rate increases squeezing borrowing power.

The upwards trend has been so substantial that record prices are now anticipated in Sydney and Melbourne before the end of the year, while rents have also soared for most Australians.

SQM expects rents to rise further next year, with increases between seven and 10 per cent expected nationwide.

Perth is set to lead the way with rises between 12 per cent and 15 per cent.

“This ongoing imbalance between demand and supply will continue to put upward pressure on rents around the country,” the analytics firm said in its report.

SQM has also canvassed other scenarios for the property market over the next year, including a world where energy prices soar off the back of extended conflict throughout the Middle East.

In that scenario nationwide property prices could fall up to three per cent on average, SQM said.

But in a more positive scenario where population growth is “very strong” prices could not fall and instead increase as much as five per cent.

Christopher said that if his central scenario is wrong it will be because the jobs market turns out to be stronger than anticipated or because migration grows even more quickly over 2024.

It’s also possible that home owners manage to withstand higher lending rates, as they have over the course of 2023, he said.