Australia’s Economic Outlook for 2024: Unveiling the Economic Puzzle

Australia’s Economic Outlook for 2024

Are you feeling the pressure from rising rates or are you feeling the pressures of the rising cost of living? There are many factors that are impacting Australia’s economic outlook, including interest rates, unemployment, population growth, export markets and home building productivity. So, what’s in store for 2024?

Cash Rate Target’s Impact on the Economy.

The Reserve Bank of Australia assumes that the cash rate will peak at around 4.5 per cent before declining to around 3.5 per cent by the end of 2025 (sourced from the Statement on Monetary Policy November 2023), This risks further implications for Australians, as well as impacting demand in the Australian property market. The Housing Industry Association (HIA) has raised concerns for future first-home buyers: “The rise in the cash rate doesn’t impede those buyers that already own a home (or homes) as significantly as first home buyers.”

The tightening of the monetary policy further impacts the lag of unemployment and inflation. The unemployment rate remained at 3.8 per cent in November 2023. However, it is expected to gradually increase through 2024 and 2025, to be around 4.25 per cent.

Inflation is however forecasted to decline to 3.5 percent by the end of 2024, from 5.4 per cent recorded in the September 2023 quarter. This forecasted decline in inflation is more gradual than anticipated, due to inflationary pressures dissipating slower than previously expected.

How does the cash rate impact the housing industry?

In the November 2023 HIA State and National Outlook Report, HIA forecasts the following:

  • Commencements of detached houses experienced a significant 11.7 per cent decline in the June Quarter of 2023, reaching a decade-low of 24,740. This contributed to a total of 109,890 commencements for the 2022/23 financial year, marking a 16.6 per cent decrease from the previous year. Projections indicate a further downturn, with detached house commencements expected to decrease by 10.9 per cent in the 2023/24 period, making it the weakest year since 2012/13.
  • Commencements of multi-unit structures also experienced a downturn in the June Quarter of 2023, registering a 16.4 per cent decrease. This contributed to a total of 62,290 commencements for the 2022/23 financial year, marking the lowest point since 2011/12. This annual figure represented an 18.0 per cent decline compared to the preceding year and was just slightly more than half of the peak witnessed during the apartment boom of 2015-18. Projections suggest a recovery, with multi-unit commencements anticipated to rebound by 22.3 per cent in 2023/24.

It is noticeable that higher interest rates, cost-of-living pressures and an imbalance of supply and demand are weakening the demand for new housing, along with high construction costs and ongoing capacity constraints. According to the RBA, this is expected to continue to weigh on new building approvals and dwelling investment in the period ahead.

Australian housing affordability has fallen.

HIA has also provided insight into housing affordability, comparing mortgage repayments and Australians’ income. HIA highlighted that it is becoming increasingly difficult for Australians to service a mortgage, finding that “the average mortgage repayment went up by 4.6 per cent in the [September] quarter, to be up by 21.4 per cent compared to the previous year.”

To further this, HIA exclaims that, “monthly mortgage repayments are rising faster than the average Australian’s income, making it harder to service a mortgage. In November, the RBA was not satisfied that inflation was contained and further tightened monetary policy to see the cash rate at 4.35 per cent. This will add further pressure to housing affordability.”

What is Australia’s Economic Outlook for 2024 and how can Vision help?

Can Australia’s economic activity have stronger resilience than previous months, and will cost-of-living pressures ease? It is clear that price rises in the cost of essential goods in 2023, such as housing, utilities, petrol and groceries, have caused financial strain on many households, necessitating budget adjustments and impacting Australians lifestyle and financial wellbeing.

Our upcoming Economic Update for Property Owners delves deeper into the nuances and what’s on the horizon for Australia’s economy. We know you’re curious and want to uncover strategies beyond the headlines. What will happen in 2024, how will it impact you and what can you do to stay ahead?

Our Webinar is completely free and is designed to put your mind at ease with the current situation of the economy, whether you are a homeowner, first home buyer, or property investor. Don’t let uncertainty control your financial wellbeing. Join us and take charge! Register with the button below.