House prices across Australia will grow by 4.9% on average over the next nine months, before leaping 9.4% in the year to June 2025, according to leading finance firm KPMG. 

Apartment prices are also forecast to rise 3.1% on average by June 2024 and surge 6% over the following 12 months as supply continually fails to meet increasing demand.

Interestingly, the firm expects Hobart will lead the way when it comes to house price growth.

After a predicted 3.5% fall in 2023, property in the Tasmanian capital is forecast to boast an annual growth rate of 14.2% by the end of financial year 2025.

Meanwhile, Melbourne house prices are expected to recover from a sluggish 2023 to soar 4.9% in FY24 and another 12% in FY25, outperforming those in Sydney.

Cities tipped for fastest house price growth 

Source: KPMG, change from corresponding quarter of prior year

“Despite high interest rates, constrained supply will likely dominate the factors influencing property prices in the short term and result in continued price gains in most markets during FY24,” KPMG Australia chief economist Brendan Rynne said.

“House and unit prices will then accelerate further in the next financial year as dwelling supply continues to be limited, due to scarcity of available land, falling levels of approvals, and slower or more costly construction activity.”

Demand is expected to take off, thanks to heavier migration, anticipated rate cuts, and the potential for relaxed lending conditions - at the same time, supply woes will continue.

Further, the rising cost of renting will likely encourage more renters into the property market, while foreign investors return to Australia, and buyers seek more space to work from home. 

The cost of renting increased 6.7% over the year to the June quarter, the Australian Bureau of Statistics (ABS) found, making it a leading driver of inflation.

Mortgage stress biggest weight on property prices 

“There are some factors pushing the other way – the main one being mortgage stress,” Dr Rynne said. 

“But on balance the factors pushing prices up will more than counter those restraining them.”

Recent data from PropTrack revealed median-income households could afford just 13% of properties sold on market, leaving housing affordability at a three-decade low.

Meanwhile, average-earning households need to set aside a third of their income to meet home loan repayments if they were to buy a median-priced home. 

And there’s still the question of the ‘fixed rate cliff’.

“Around $350 billion of mortgages, or half of all fixed rate credit, will expire this year – covering 880,000 Australian households”, Dr Rynne said.

“The remaining 38% of fixed rate credit, which includes about 450,000 loan facilities, will expire in 2024 and beyond. 

“Some homeowners who previously locked in low rates might be unable to pay – and won't be able to refinance to a lower and competitive rate.” 

Simultaneously, KPMG tips the cost of renting to continue rising, growing 5.6% annually over the coming two years – 2.5% higher than the long-term average. 

With new housing supply dwindling from peaks previously released amid Home Builder stimulus, the barrier to reducing rental costs is high.

“We assess that dwelling completions would have to be around 76% higher than is currently forecast for those rental costs to be pulled back to normal levels,” he said.

“Either that or population growth from migration would have to be brought down to considerably lower levels than at present – which would mean short-term costs over-riding long-term economic benefits.” 

Read more: Home Loans News First Home Buyer Buying a home

Brooke Cooper

Finance Journalist

Brooke Cooper joined the InfoChoice Group in 2023. She previously wrote for the Motley Fool, covering topics such as share prices, companies, and IPOs. With interests in everyday finance and wealth, Brooke is passionate about educating Aussies - especially young adults - on all things money.

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