How home prices surprised us in 2023

Angus Moore
Angus Moore

Home prices grew 5.5% across 2023. While nowhere near as a quick as the multi-decade-record growth in 2021, it was still a reasonably solid year.

And it was also a lot stronger than we expected.

Going in to 2023, we expected prices would keep falling, on the back of rapidly rising interest rates and housing affordability at its worst level in at least three decades. Clearly, that didn’t happen.

An important part of this rebound was how quickly Sydney and Brisbane rebounded from the 2022 downturn.

Prices in Sydney started falling a little sooner than the national peak in March 2022 – with prices peaking a month earlier. From there, prices in Sydney fell 6.8% until they bottomed out in November. Prices then recovered quite quickly – erasing their losses by October 2023, with prices up 7.7% across 2023 as a whole.

Brisbane looks similar, but had a more mild downturn and an even sharper recovery. Prices in Brisbane were up a strong 10.4% across 2023.

Melbourne’s recovery has been softer. While prices did stop falling around the start of 2023, they have grown only slightly since, and are up 0.9% across 2023 (and slipping a little towards the end of the year). That continues Melbourne’s comparatively slower growth in home prices since the pandemic began.

Outside the three largest cities, there are two very different stories.

Adelaide and Perth largely avoided the downturn in prices, and prices have continued to surge ahead. In 2023, prices in Adelaide were up 10.9%, and in Perth they were up 14.8% - by far the fastest growing market in the country.

For Adelaide that performance continues its strong growth throughout the pandemic, and it is the second-strongest market overall relative to pre-pandemic (only just behind regional Queensland).

For Perth, it’s a more recent phenomenon. Perth’s home prices did not grow as quickly in 2021 as most other parts of the country, and prices in Perth fell throughout much of the mid-to-late 2010s.

As a result, WA is the most affordable state in Australia, which has helped support demand in 2023. Perth homebuyers have also been faced with very little choice, with a record-low number of properties available for sale for much of the year.

The reverse is true in Hobart. After very little choice and strong price growth during the pandemic (and in the years prior), Hobart’s property market has seen prices fall and choice improve in 2023. That surge in prices in the years leading up to, and during, the pandemic means Tasmania is now the second-least affordable state in Australia. That’s likely weighed on prices.

While prices showed some signs of flattening out in the middle of 2023, they slipped again towards the end of the year, and so, to date, there is not yet much evidence of a recovery in Hobart’s home prices.

As we head in to 2024, we are expecting we’ll see prices increase, but only modestly and a little slower than what we saw in 2023. The big unknown is interest rates: unlike a few months ago, markets are no longer pricing in further interest rate increases. In fact, pricing suggests a reasonable chance of interest rate cuts as early as the middle of the year.

If that were to transpire it would support home prices. But that's by no means guaranteed: inflation has, so far, been coming back under control at roughly the pace the RBA is expecting, but if that were to change, we could see further interest rate increases.

On the other side, affordability remains extremely stretched. Growing wages, and potentially lower interest rates, will start to offset higher mortgage costs and improve affordability, but it will be a slow process.

Strained affordability will be headwind for prices this year, and is why we’re expecting growth will be below average.

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