I always had a hunch that 2023 could be the ‘year of two halves’, and it was a pretty good description. Sales volumes were very weak in early 2023, and property values fell further. But then, from the middle of the year, mortgage rates flattened out, migration rose, the labour market remained solid, and credit conditions (CCCFA, LVRs) eased – prompting a (modest) rise in sales activity and the start of a turnaround for property prices. However, even though the emerging recovery is now upon us, it wouldn’t be a surprise to see the housing market in 2024 turn out to be more subdued than in previous episodes – i.e. an underwhelming upturn.
To be fair, the year is likely to kick off with a ‘positive vibe’, given that the new Government is now in place and will be working towards its more property-friendly stance. Indeed, as far as we can tell, the Brightline Test is still on track to be shortened back to two years for all properties (whether old or new) from July 2024, and this could start to pull some new investment demand back into the market, however, given the current strains on cash flow, that could easily drive a bit more selling too, as some existing investors find themselves off the hook for capital gains tax sooner than they expected. Ultimately, this might be a sales/liquidity rather than a price effect.
That cash flow angle is also vital when considering the possible impact of an accelerated timeframe for reinstating 100% mortgage interest deductibility for all investors. Existing investors will indeed see smaller tax bills, and the sums will also start to look more favourable for some would-be new & expanding investors too. But with gross rental yields still low and mortgage rates high,...
