Hotspotting

Two very different headlines have summed up the problems for Australia's ongoing housing shortage.

One of the recent media headlines declared that building approvals were at a two-year high and that things were improving for the nation's housing shortage.

The other described why building approvals are almost irrelevant – it said that project deferrals are occurring at a record rate.

The reality of the current crisis is this: it doesn't matter how many houses and apartments are approved for construction – and it doesn't matter how many re-zonings state governments push through or what incentives they hand out to first-home buyers.

Most real estate developments are not proceeding because they're not financially viable.

One of those media headlines read: Building approvals hit two-year high as apartment construction surges.

This was incorrect - apartment construction is not surging – approvals are, but many projects are simply not being built because they're not viable in the current environment.

It's so expensive to build that the end price for the dwellings would be far too high for most buyers – and therefore not financially feasible.

In October, Australian dwelling approvals reached their highest level in 22 months - with nearly 15,000 new homes approved for construction during the month.

ABS data showed total dwelling approvals rose 4.2 per cent for the month, with approvals for apartments and townhouses jumping 25 per cent to over 5,800 units, the highest since May 2023 – but private house approvals fell 5.2 per cent.

The AFR showed a startling lack of understanding of the problems in the industry when it declared in a headline: Worst has passed for new home building

The article said: "The worst has passed for Australia's medium- and high-rise housing sector, economists said on Monday, after a jump in approvals of new apartments, townhouses and semi-detached homes."

KPMG urban economist Terry Rawnsley said:

"The bad times are starting to end … Even with interest rates being unchanged for the year, they still have that confidence that if they can get a project out of the ground they'll be able to sell it at a profit."

But that, we think, was rather naïve – and others were less optimistic.

The Property Council of Australia pointed out that apartment approvals were still at half their level of the development boom under way in FY2018.

And Oxford Economics Australia senior economist Maree Kilroy said: "While the latest approval result for apartments was positive, we continue to expect a materially higher dropout rate to commencement."

In other words, many approvals would not translate into construction. She referred to utility connection bottlenecks and trade labour shortages as problems in the sector.

Matthew Kandelaars of the Property Council said:

"We need to get back to the construction levels seen nearly 10 years ago. We are now six months into the National Housing Accord's ambitious target of delivering 1.2 million new homes and we cannot allow the target to slowly fade into the background over the next 4½ years."

According to a new report, money is still flowing into the construction industry but more and more of it is being dedicated to renovating.

KPMG released analysis of spending in the residential construction sector, revealing that while spending on renovations has boomed over the past five years, new residential construction on a per-capita basis has hit a low not seen since 1988.

Over the past five years, spending on new home building has dropped 14 per cent, adjusted for inflation. By comparison, the amount of funding flowing into renovations has increased by 6.5 per cent.

KPMG said:

"For every nail hammered and brick laid in residential construction, 40 per cent of it is going into renovating a pre-existing home."

So the underlying problem remains. Regardless of how many dwellings are approved, far too few are proceeding to construction – so the fundamental shortage continues and there will continue to be upward pressure on prices and rents.

In this insightful webinar, Terry Ryder, founder of Hotspotting, and Tim Graham, Hotspotting's General Manager, analyze the surprises and trends of 2024 in the Australian property market and share their projections for 2025. With decades of combined experience, they provide investors with actionable advice on navigating the coming year.

• Defying Predictions: Despite high interest rates and inflationary pressures, property prices rose by an average of 5.53% nationally in 2024. Perth led with an astonishing 18.7% growth, followed by regional Western Australia, Adelaide, and Brisbane.
• Surprise Winners: Hotspotting's 2024 National Best Buys Report proved remarkably accurate, with 9 out of 10 selected locations achieving growth three times the national average.
• Shift to Apartments: Demand for attached dwellings surged, driven by affordability and lifestyle preferences, with some unit markets outperforming houses in capital growth.

• Second Wind Markets: Regions like the Sunshine Coast, Albury-Wodonga, and Ballarat are emerging from a "pause phase" and are primed for growth, fueled by rising sales volumes and infrastructure developments.
• Avoid Frenzied Markets: Perth, Adelaide, and regional Queensland hotspots like Townsville are reaching their peaks. Investors should seek opportunities in undervalued markets with long-term growth potential.
• Surprising Contenders: Cities like Darwin and Launceston, as well as regional Victorian areas, are poised for unexpected growth, offering affordability and strong rental yields.

• Affordability Focus: High interest rates are amplifying the appeal of regions with lower entry prices and strong rental yields.
• Infrastructure Impact: Areas benefiting from large-scale projects, such as Toowoomba and inland rail hubs, continue to attract growth.
• Changing Investor Mindsets: Long-term strategies and careful market selection are replacing speculative approaches.

• National Top 10 Best Buys Report: Just $249.
• Best of the Best Bundle: Three premium reports for $399 (save $200).
• Exclusive Property Course: Register now for early bird discounts on Hotspotting's comprehensive new property investment course launching in 2025.

Special Offers

National Top 10 Best Buys Report: Just $249.

https://www.hotspotting.com.au/product/national-top-10-best-buys/

Best of the Best Bundle: Three premium reports for $399 (save $198). https://www.hotspotting.com.au/product/best-of-the-best-bundle/

Exclusive Property Course: Register now for early bird discounts on Hotspotting's comprehensive new property investment course launching in 2025.

Register your interest for early-bird specials: https://lwdt7n6k0ij.typeform.com/to/MHVUya51

You don't have to be super rich or invest $1 million to make big capital gains in residential real estate: you just need to follow Hotspotting's signature report, the National Top 10 Best Buys report.

Those who followed the tips in our report of a year ago could have made close to $100,000 in capital gains spending as little as $400,000 – or $180,000 in gains after investing $630,000.

In December 2023 we published our National Top Best Buys reports for Summer 2023-34. Our top 10 locations for investors to consider covered a wide range of price points, from less than $300,000 and above $1 million.

And all 10 regions suggested in that report a year ago include suburbs which have delivered spectacular gains in the past 12 months. Many rose by more than 20% in 12 months, compared with the national average rise of just 5.5%.

In Bunbury in Western Australia, you would have paid below $350,000 for the typical house in suburbs like Carey Park and Withers – and seen your investment grow by $90,000 or more, following annual growth between 25% to 30%.

Even a modest investment of less than $300,000 for a small unit in Carlton in inner-city Melbourne would have shown excellent capital growth, out-performing the generally flat Melbourne market.

Those with more to spend late in 2023 could have achieved over $200,000 in capital growth by buying houses at the median price in locations such as Punchbowl in Sydney and Carrara on the Gold Coast, or apartments in Elizabeth Bay in Sydney.

More mid-range were units in Kangaroo Point in Brisbane or at Runaway Bay on the Gold Coast; and houses in Tea Tree Gully in Adelaide or Fairy Meadow in Wollongong – all delivering $100,000 or more in gains for those who bought around the median price for those locations.

The average situation arising out of our National Top 10 Best Buys report a year ago was investing $640,000 and achieving a 21% rise in value, which means capital gains of $146,000.

We've recently published our National Top 10 Best Buys report with our selections to launch 2025.

And, in keeping with our tradition of seeking to identify the future hotspots – which means locations with potential for strong price growth, but before those markets rise strongly and become competitive – the new edition of Best Buys does not include already hot markets like Perth, Adelaide and key regional markets in Queensland.

We've identified places where you can buy sensibly, with due diligence, and look forward to excellent capital growth over time.

The greatest complaint heard most often in real estate across Australia is that there are plenty of buyers, but a shortage of listings.

The number of properties for sale has been well short of the levels needed for a balanced market, particularly in the boom cities of Adelaide, Brisbane and Perth.

But that is steadily changing. According to SQM Research, total listings of properties for sale nationwide grew 7.6% in November and are now more than 10% higher than a year ago.

Perhaps most significantly, there were major rises in November in those three boom cities, with the number of listings up 20% in Perth and close to 17% in Adelaide, with Brisbane recording a rise of 8.6%.

That follows significant increases in October also.

The rise in listings nationally in November was driven by a 6.4% rise in old listings (stock on market over 180 days) and a notable 22% rise in properties being on the market between 30 to 90 days.

SQM Research commented that this strongly indicated that the spring selling season had been a disappointing period for vendors and agents.

Cities with significant annual increases in listings included Sydney, Melbourne and Hobart – all up 16 to 17 per cent – and Canberra, up 23% in annual terms.

Comparing the current situation with recent history, national listings of properties for sale are still below the levels common before 2021, but have been generally rising since July.

In Sydney, listings are the highest they've been since 2019 and in Melbourne they're the highest since November 2020. In Canberra they're close to the peak levels of 2019.

In Perth, Brisbane and Adelaide they're still well below historic levels but have been rising steadily since mid-2024, with particularly large increases in November.

The rise in the number of properties for sale coincides with evidence that the rate of price growth is reducing in those market-leading cities.

The big exception in all this is Darwin, the only capital city to record a reduction in the number of listings in November – and it remains 17% below the levels of a year ago.

The figures provide further evidence of change in individual markets, with a growing number of indictors that the Perth boom has passed its peak and that there may be stronger price performance in places like Darwin in 2025.

Things are constantly changing in real estate nationwide but the one factor that never changes is this:

we can always rely on news media to distort the facts and deliver a steady flow of misinformation to Australian consumers, all in the interests of attracting readership, with little regard for accuracy, honesty or fairness.

The past week or so has been chockful of media nonsense.

If you can believe the headlines, the national property boom is over, house prices are plunging, the rental boom is over and the North Queensland city of Townsville is a mining town.

One of the constants of my 40-plus years charting Australian real estate is that there are lines and lines of idiots scrambling to be the first to declare that a boom is over, usually long before it actually is.

This is often fed by data research entities like CoreLogic where the key people never let the facts get in the way of good headline and free publicity.

So Australia has been resplendent lately with strident headlines declaring that the national property boom is over or words to that effect.

Here's the first problem: we don't have a national property boom so it's rather odd to declare that something which doesn't exist is finished.

We have certainly had a boom in Perth, Adelaide and Brisbane among the capital cities, but certainly nothing remotely resembling a boom in the other five state and territory capitals.

It's a similar scenario in the regional markets, with a variety of different situations ranging from downturn and stagnation to moderate growth and, in some cases, strongly rising prices.

But nationally growth in house and unit prices has averaged 6 or 7 percent throughout 2024 – and lately the annual growth rate, as a national average, has been 4 or 5 percent. Only in the fertile imaginations of media headline writers would that constitute a boom.

But, according to various media outlets, this mythical boom is over – even though the latest figures for annual growth in three of our capital cities and three of our state regional markets are still well above 10%.

The only places where the evidence suggests the boom is over are the ones where a boom never took place – like Melbourne, Hobart, Darwin and Canberra.

But not only, according to media, is the fictional national boom over, but property prices are plunging. One headline in Fairfax media claimed to reveal Why property prices are plunging across Australia – amid warning they could slide even further.

A close examination of the article underneath this startling headline discovered there was no evidence in the story to justify the headline. Quite simply, the headline was a blatant fabrication – which, sadly, is all too common in today's news media.

The article revealed that Sydney's median price was 0.8% lower than three months earlier but 3.3% higher than a year earlier, while Melbourne was down 1% over three months. Nothing in those figures goes even close to "prices plunging".

In the other major cities prices were still rising and indeed were still growing at boom time rates.

House prices were also up in the Combined Regions in the latest month, the latest quarter and the past year– and unit prices were also up nationally, both in the cities and the regions.

So, there was very little sign of even minor decline in prices anywhere and certainly no evidence at all of price plunging.

So this was yet another instance of a headline which was an outright and blatant lie.

And who wrote this rubbish? well, it was the champion of negative media about residential real estate, the endlessly sad Shane Wright who has devoted his career to writing nonsense about property markets.

But wait, there's more. Not only is the fictional national price boom over, but apparently the rental boom is over as well!

There have been strident headlines and soundbites inferring that rents are no longer rising.

As is so often the case with these big sweeping media statements, the claim was based on a single month's figures from one source. Nationally, rents rose only 0.2% in November, according to CoreLogic, therefore the boom is over in the simplistic minds of attention-seeking analysts and journalists.

And, yes, once again, the source of this myopic and shallow analysis is CoreLogic, a business which publishes lots of major real estate data but is quite dreadful at analysing what it all means.

So CoreLogic's head of research Tim Lawless said:

"At 5.3% annual growth, rents are still rising at more than twice the pre-pandemic decade average of 2.0%, but given the weak monthly change the annual trend is set to slow further from here.

"It will be interesting to see if the rate of rental growth rebounds through the seasonally strong first quarter of the year in 2025, but beyond any seasonality, it looks increasingly like the rental boom is over".

But other sources tell a different story. SQM Research records a monthly rise of a tick under 1% as the national average for residential rents, with Adelaide up 1.1%, Perth rising 1.9% and Canberra up 1.5%.

The national vacancy rate remains a fraction above 1%, essentially unchanged from three years ago, so can anyone justify a claim that the rental shortage crisis and rising rents is all done and dusted? Hardly.

Another startling set of headlines resulted from the latest Regional Market Update from CoreLogic which declared that the highest capital growth was occurring in Queensland and WA mining towns.

I was truly perplexed because I know there has been little price growth recently in mining towns like Karratha, Port Hedland and Newman in WA and Moranbah in Queensland.

However, the headlines resulted from CoreLogic boffins – yes, it's CoreLogic again - re-defining major regional cities as mining towns.

Apparently Townsville, which has one of the most diverse economies in regional Australia, with only minor influence from the resources sector, is now a mining town.

So is the key Central Queensland of Mackay, apparently, despite being 2-3 hours' drive from the nearest coal mine.

In WA, the key regional city of Geraldton is also, apparently, a mining town, according to Core illogic, although the nearest iron ore mine is an hour's drive away.

All of this, and a whole lot more, reinforces our view that there is more misinformation than actual information in mainstream media.

And that any real estate consumer who bases a decision on the content of media reports is at risk of making a very bad decision.

Rumours of the death of 'the national property boom' are greatly exaggerated – especially since we didn't have a national property boom in 2024. Rather, over the past 12 months, we have seen differing market cycles in many locations - as is the usual state of play in real estate throughout Australia. Strong property price growth was recorded in Perth, Adelaide, and Brisbane in 2024, but not in Melbourne, Sydney, Canberra, Darwin or Hobart.

Similarly, in the regional areas, there were declining and stagnating markets, as well as some where prices were showing good price growth.

This is situation normal in Australian real estate. It's a big country and real estate markets are very local in nature.

So, a national property boom? We haven't had one. So you ignore headlines declaring that the national property boom is over.

So, what can we expect in residential real estate in 2025? Firstly, the major bank economists will predict price declines in 2025 – as they did at the start of 2023 and again at the start of 2024 - and will be proven wrong yet again because it they fail to understand the basic dynamics that drive prices in residential real estate. Politicians will continue to scapegoat their traditional targets of foreigners (migrants, international students and foreign investors) as well as mum-and-dad Australian investors – and enlist the help of shallow journalists to infer that these cohorts are the cause of all the problems in the housing markets.

The reality is that investors, local and foreign, are not the problem – they are the solution. They hold the keys to solving the housing crisis.

Meanwhile, most State Governments will continue to make the housing crisis worse with anti-investor policies - with the negative ramifications of recent rental reforms to become more apparent as 2025 unfolds. Vacancy rates will remain low, but the rate of rental growth generally will slow because markets have hit a ceiling due to limits in the capacity of tenants to pay more.

However, restrictive rental legislation by various state and territory governments will continue to motivate some investors to sell up – thereby making the rental shortage worse. The Greens will continue to embarrass themselves and lose voter support with anti-investor rants, with the Federal Election due early in the year likely to see their influence reduce even more.

Investors will continue to pile into the frenzied markets, mostly in regional Queensland -however, the smart money will target locations early in the growth cycle, not at the end. Evidence that the Perth market has passed its peak will become more apparent with a similar slowdown forecast for regional WA. The solid economic and market fundamentals in Adelaide means it will continue to show solid growth next year as well as Brisbane and regional Queensland.

Melbourne did not have a good year in 2023 or in 2024, but I believe it will start to rise next year, thanks to the price differential with Sydney and its high population growth. This will occur despite Melbourne having the worst state government and the highest taxes in the nation. Darwin will be targeted by investors and will begin to show some price growth next year, too. More and more indicators are favourable for the Northern Territory capital, with investors seeking its affordable houses and high rental yields. The Exodus to Affordable Lifestyle will continue, boosting many regional markets, as more big city residents seek a different and more affordable way of living, enabled by technology and the ability to work remotely. What we have termed the 'second-wind markets' will ignite.

These are locations where the market sprinted (with major price growth) from 2022 to 2024, has been catching it breath since then, and now, having got its second wind, is starting to run again.

They include regional cities such as Albury-Wodonga and Tamworth in NSW, the Sunshine Coast and Hervey Bay in Queensland, Bendigo and Ballarat in Victoria, as well as Launceston and Burnie in Tasmania.

There will continue to be a lot of conjecture about interest rates next year, but the potential impact of any rate reductions will be largely irrelevant and greatly over-rated by many economists and news media.

As we've learned from the past two years, trends with interest rates are not the major influence on real estate outcomes.

If they were, prices would have fallen everywhere over the past two years.

And that, clearly, has not been the case.

Hotspotting was among the first to identify and highlight the most significant change in the Australian real estate scene – the emerging trend which we document in the quarterly editions of the report titled The Rise and Rise of Apartments., published in association with Nuestar.

This trend has turned upside down the dominant paradigm in real estate, that houses out-perform apartments on capital growth. There is now growing evidence that attached dwellings are mounting a strong challenge to houses.

It has long been believed that land content was the big thing in driving property values and that units lacked this quality.

Increasingly, it's clear that this theory about capital growth needs to be re-considered and to acknowledge that attached dwellings like apartments have qualities that houses don't have and which are important to growing numbers of buyers.

The latest Housing Affordability Report, jointly released by CoreLogic and ANZ, has

observed that capital city unit prices increased more over the three months to October 2024, than did house prices over the same period, suggesting a growing preference among home-buyers and investors for units as an affordable option in getting into the market.

The growth difference was small, but it's merely the latest in a growing set of figures showing the rising performance of units.

In the month of October, the median price growth for units was higher than for houses in the nation's five biggest cities and also for the combined regions.

This was also the case for the October quarter.

In annual terms, price growth has been better for units than houses in the three capital cities leading the nation on market growth – Brisbane, Adelaide and Perth. Units have also out-performed in the regional markets of Queensland, WA, NSW and Victoria.

The annual growth in median unit prices, according to CoreLogic, has been 18% in Adelaide, 19% in Brisbane and 24% in Perth. Those are spectacular increases and provide compelling evidence to disprove the notion that attached dwellings don't perform on capital growth.

There are also growing numbers of suburbs around Australia where unit price growth is higher, both in the short-term and the long-term.

The Hotspotting Research Hub shows that at Noosa Heads on the Sunshine Coast, the five-year growth average is 10% per year for houses and 17% per year for units. At Surfers Paradise on the Gold Coast, it's 8% per year for houses and 12% per year for units.

There are many other similar examples across the nation.

REA Group, which publishes realestate.com.au, has recently highlighted locations where unit price growth is outpacing houses.

Megan Lieu, Economic Analyst at REA Group, says:

"Historically, house values have risen at a faster rate than units, but with affordability pressures, units are being preferred by many homebuyers."

"In certain suburbs," she says, "unit prices have grown at more than double the rate of houses over the past year."

Searches for units on realestate.com.au have also been trending upwards since mid 2020. They now make up close to 40% of all buy searches on-site.

Lieu says that, while the strong performance of units has been evident nationwide, there are areas where demand for units has been particularly high, resulting in significant price increases compared to houses.

In New South Wales, for example, the annual growth in unit values in Engadine, Wagga Wagga and Merimbula has outpaced houses by around 6 percentage points.

In Victorian, Safety Beach, Templestowe Lower and Warragul are examples of locations which have experienced stronger growth in their values compared to houses by considerable margins.

The largest difference in value growth between units and houses in Queensland was observed in the Brisbane suburbs of Waterford, Nundah and Waterford West. Units in Waterford and Waterford West increased at more than twice the percentage of houses in these suburbs in the past 12 months.

PropTrack says that, with housing affordability at its lowest level in three decades, it's to be expected that people are turning to more economical options, especially in suburbs where the gap between house and unit values is significant.

But Hotspotting analysis shows that affordability is NOT the only reason that demand for units is rising. More buyers are choosing attached dwellings for location, for lifestyle and also for safety and security at a time of growing concerns about escalating crime levels.

For all those reasons, each quarter Hotspotting publishes a national report titled The Rise and Rise of Apartments, in association with the leading real estate marketing company Nuestar.

And it proves, emphatically, the units are now a strong option for buyers seeking not only affordability, but strong capital growth as well.

Thinking of buying property on your own?

🏡 In this episode of The Property Playbook, host Terry Ryder is joined by Chris Graham, Senior Property Advisor at Australian Hotspot Advocacy, to explore why engaging a buyer's agent could be the key to securing your next winning investment.

What You'll Learn:

• What a buyer's agent does and how they work exclusively for the buyer's interests.
• The value of off-market properties and how buyer's agents can provide access.
• Why having a professional on your team ensures due diligence and avoids costly mistakes.
• How to identify a trustworthy buyer's agent with the right credentials.
• The benefits of flat-fee models versus commission-based services.
• Real-life success stories, including securing properties below market value with built-in equity.

Highlights:

• [00:51] The role of a buyer's agent and why it's better than going solo.
• [02:39] Success story: Securing a $55,000 equity gain on an off-market property.
• [04:17] How buyer's agents help clients avoid risky purchases and protect investments.
• [06:33] The cost structures of buyer's agents: Flat-fee vs. commission-based models.
• [08:28] Off-market properties: What they are and why they're a hidden gem for investors.

Whether you're a first-time buyer or a seasoned investor, this episode will open your eyes to the strategic advantages of working with a buyer's agent to build wealth through property.

If you would like to connect with Chris, you can reach him at [email protected]

Melbourne's property market remains the great under-achiever of the nation but that may be about to change.

A number of key indicators suggest better performance by the Melbourne property market is imminent.

One pointer to better times is the latest Property Sentiment survey by API magazine, which recorded a major turnaround in investor attitudes towards the Victorian property market.

The survey asked: Which state or territory do you regard as having the best property investment prospects for the next 12 months?

Mid-year Melbourne and Victoria attracted only 8.6 per cent of respondents who felt it was the best state for property investment.

Three months later in the new survey there was a remarkable turnaround, with 25 per cent identifying Victoria as having the best property investment prospects for the next 12 months.

This ranked Victoria No.2 - above New South Wales and Western Australia, and close behind Queensland in the investment popularity stakes.

One of the attractions of Melbourne is its relative affordability, thanks for the absence of price growth in the past two years.

The latest Home Price Index from PropTrack shows that Melbourne is currently cheaper than Canberra and Brisbane, as well as being well behind Sydney. Melbourne's median dwelling price is on a par with Adelaide and Perth now.

Sydney's median dwelling price is $1.1 million, compared to $790,000 in Melbourne.

There is a growing perception that Melbourne is now affordable and poised for capital growth that would return it to its more familiar spot sitting a little ehind Sydney as the country's priciest market.

Indeed, the latest PropTrack price report notes recent evidence of a turnaround for Melbourne. It says:

"Price falls have started to reverse in Melbourne, with buyers out in force for the peak of spring selling season. Prices rose 0.5% in October, the highest monthly growth rate among the capital cities."

Other factors suggesting that Melbourne is due for a period of stronger property market performance include population growth (fuelled by overseas migrants and international students), a solid economy and a significant program of major infrastructure developments.

The latest edition of the State of the States report from CommSec ranked Victoria No.4 among the state and territory economies, ahead of NSW, the ACT, Tasmania and the Northern Territory. The report said the greatest strength of the Victoria economy is the level of construction work.

The latest population data from the ABS shows Victoria had the second highest growth rate among the states and territories in the year to March 2024, rising 2.7% compared to the national average of 2.3% - and bettered only by Western Australia.

In raw numbers, Victoria added more to its population than any other state, ahead of NSW and Queensland.

Jacob Caine, President of the REIV, says Victoria has always been an attractive destination for overseas and interstate migration.

Caine says: "Melbourne's reputation as one of the most liveable cities is well deserved.

"We have a growing population and growing demand for rental properties with new residents more likely to rent before buying.

"The challenge in Victoria is a lack of housing supply, and the need for Government to build a stronger policy platform that will attract new property investors to meet the needs of the market."

One positive policy from the State Government is the recent announcement that the stamp duty concession for off-the-plan properties in Victoria has been extended to investors - and the price cap removed for home buyers, albeit temporarily.

This has been largely welcomed by the sector, as offering a much-needed boost to development.

New data from off-the-plan property portal, urban.com.au, has shown a "massive spike in interest" for Victorian off-the-plan projects after the concession's announcement, reporting an immediate 123 per cent increase in direct online enquiries, and a fivefold increase in online traffic volume.

Another factor in favour of investors is the reduction is the number of rental properties available, putting upward pressure on residential rents.

For the first time since records began in 1999, Victoria's active rental bonds dropped significantly over the 12 months to June 2024, signalling a significant shift in the state's rental market.

There are now 22,000 fewer rental properties in the market than a year ago.

Victoria's high property taxes and stricter rental property standards have made owning investment properties less attractive. These factors, combined with sustained higher interest rates, have driven many landlords to sell off their properties.

Melbourne's metro areas have experienced the largest declines, with more than 20,000 fewer rental properties, a 3.7% year-on-year decrease. Regional Victoria saw a smaller drop of around 1,000 properties.

Every Melbourne LGA saw rents rise in the past year, with some regions experiencing increases of nearly 20%. Overall, rents are (on average) 7.5% higher than a year ago, creating affordability challenges for tenants.

Another positive for the state is that Victoria currently leads the nation in first-home buyer activity, accounting for 32% of new loans.

Victoria's population is projected to grow significantly over the next five years, further increasing demand for rental properties. The shrinking rental market, combined with rising construction costs and fewer new developments, could exacerbate housing affordability issues for both renters and buyers.

The Australian Financial Review reported earlier this month that "Melbourne's housing market could outperform Sydney and other capital cities once it emerges from its current downturn, boosted by a marked improvement in affordability after years of weak growth".

Nicola Powell, Domain's chief of research and economics, says: "In the next cycle, we're likely to see Melbourne overperform because it has underperformed significantly compared to other capital cities since March 2020."

AMP capital's chief economist Shane Oliver says he expects Melbourne prices to grow more than Sydney's in the next upswing.

Oliver says: "Melbourne's been lagging for some time, but this has made the property market relatively cheap compared to Sydney and the other cities. Because of its relative underperformance, it could bounce back a little bit quicker and sharper."

At Hotspotting, our assessment is that many of the key parameters and indicators are lining up to boost the growth prospects for Melbourne and Regional Victoria in 2025. The city and the state generally are overdue for a period of price growth.

I have frequently highlighted the poor track record of economists in predicting outcomes in real estate markets across Australia – and in particular the embarrassingly bad record of economists working for the Big 4 banks and for other major institutions like AMP Capital.

Their forecasts for house prices at the beginning of each of the past five years have been so far off the mark, it's puzzling that the big-name economists who made these blunders have kept their jobs.

Because what these outcomes mean is that these boffins have a very poor understanding of residential real estate – and that, after all, is a significant part of what they are paid their fat salaries to be good at.

The most puzzling thing is that there's a clear and obvious reason they always get it wrong – they think that the major determinant of house prices is what's happening with interest rates.

Big bank economists cling to their pet theory that if interest rates are high and /or rising, prices will fall. And if interest rates are low and /or falling, house prices will rise.

In the mindset of these over-rated and over-paid bureaucrats, nothing else is in play. Not economic growth, not government stimulus, not population trends, not major infrastructure investment, not basic supply and demand factors, nor new and emerging trends like the Exodus to Affordable Lifestyle or the Rise and Rise of Apartments.

For them, it's just interest rates. I know primary school kids with a more sophisticated understanding of real estate dynamics.

If the bank boffins were worth their salaries they would have noticed what happened with national property prices in 2023 and again in 2024, in both cases years of solid growth, in defiance of their forecasts that prices would crash because interest were rising or persistently high.

But beyond recent history, a quick study of past decades shows that their theory about interest rates and property prices is a false and failed philosophy.

Throughout the past 40-50 years, property markets in Australia have pretty much done the opposite to what the modern economist mindset suggests SHOULD happen.

The highest interest rates in my lifetime occurred in the 1980s. Throughout that decade mortgage rates were commonly above 10% and went as high as 17-18% towards the end of the period.

And yet some of the biggest property price growth in the nation's history occurred during that period of insanely high mortgage rates – with the capital city median dwelling price rising 141% - from $59,000 in 1980 to $142,000 in 1990.

The growth in the second half of that decade, when interest rates were at their highest, was 75% - with the median dwelling price lifting from $81,000 to $142,000.

Interest rates were much lower during the 1990s, but dwelling values grew at a much slower rate in that decade, rising just 46%. So, to repeat, prices grew 141% in the 1980s with record high interest rates (up to 18%), but grew only 46% in the 1990s with interest rates much lower, down as low at 7%.

The early part of this century was another period of rising interest rates, but price growth picked up – rising 114% from 2000 to 2010.

Interest rates were considerably lower between 2010 and 2020, but the rate of price growth slowed significantly, compared to the previous decade when mortgage rates were higher.

The median dwelling price rose only 20% between 2010 and 2015, and just 23% between 2015 and 2020, despite mortgage rates getting down to around 3%.

Since 2020, we've seen dwelling prices grow much faster – up 36% overall in four years, despite the recent period of high and rising interest rates.

It's pretty clear, isn't it – so clear, in fact, that even a bank economist could understand it. Since 1980, dwelling prices have done the opposite to what bank economists say they should do – they have risen most strongly when mortgage rates have been high and the price growth has been weakest when interest rates have been low.

There have been one or two exceptions and aberrations along the way, including in 2021 when we experienced high price growth at a time of low interest rates, but that was generated by a host of other major influences, including government stimulus measures.

Beyond that, what the data tells us again and again, is that we're more likely to have rising property prices when interest rates are high and rising.

And, when you think it through, it makes perfect sense – we get rising interest rates when the economy is strong, unemployment is low and consumers are spending – in other words, the sort of circumstances when people are more likely to be out buying real estate.

For the record, how much have Australian dwelling prices grown in the 44 years since 1980? They've grown, on average, 1440 per cent.

There's been some level of growth in every five-year period since 1980, quite oblivious to what's been going on with interest rates.

Right now, there's lot of speculation from economists and other commentators that when the Reserve Bank eventually cuts the official rate, perhaps early in 2025, it will ignite property markets and cause property prices to rise.

These kinds of views, repeated multiple times in news media every day, have resulted in most people believing that property markets are indeed driven by events with interest rates.

History, including recent history, proves it simply isn't so.