Get used to higher interest rates, says McGrath

Scott Kuru October 29, 2024 6 min read

Image from McGrath Estate Agents/NSW real estate

KEY POINTS

Australia's leading real estate agent, John McGrath, says the 2-3% interest rate era is over, pushing buyers and investors to more affordable areas or apartments over houses.
John McGrath emphasises the impact of retiring baby boomers, predicting strong growth for coastal towns as they choose to downsize
In his 2025 “McGrath Report,” the real estate guru also highlighted the suburbs he believed would achieve excellent value growth over the next 12 months.

Australia’s most high profile real estate agent has warned that the era of low interest rates in Australia is over.

John McGrath - the CEO of McGrath Real Estate Agents - says many homebuyers and investors are responding to tighter credit conditions by buying in more affordable areas or by purchasing smaller homes.

The warning comes as the real estate guru has revealed the top suburbs on the East Coast that he believes are poised for strong price growth in 2025.

Rates

Each October, John McGrath releases “The McGrath Report”.

It’s a comprehensive look at the trends he believes will shape the real estate market in the coming year, and the locations he expects will experience strong price growth over the next 12 months.

This year’s report starts with a warning.

“We believe we are approaching 'A New Era' in property,” John McGrath says.

With the RBA maintaining the cash rate at 4.35% since November last year and financial markets increasingly pushing back the timing of any rate cuts until at least April next year, the real estate guru advice is that it's a good idea to get used to the new reality of “higher for longer” when it comes to interest rates.

With retail mortgage rates in the 6-8% range, John McGrath sees no prospect of a return to the low rates seen during the pandemic, which enabled many Australians to take out cheap housing loans.

“The age of 2% to 3% mortgage rates is over, and many buyers are responding to tighter credit by moving to more affordable areas and/or buying smaller homes,” he says.

Baby Boomers and their Coastal Focus

A Baby Boomer himself, John McGrath, says this key population demographic “has reached a stage of life when they're making some major decisions.”

“The Baby Boomers hold half of Australia’s private wealth, so when a lot of them are buying and selling at the same time, it has the power to move markets.”

John McGrath points out that Baby Boomers are “retiring, downsizing, buying investments, and helping their kids buy their first homes.”

The Australian Bureau of Statistics says that 710,000 Australians intend to retire between 2022-23 and 2027-28.

“Many will make a seachange, taking generous budgets to comparatively affordable coastal towns, with a steady price uplift inevitable in the most popular locations,” John McGrath predicts.

New South Wales

The McGrath Report says that despite high interest rates and cost of living pressures, home prices in Sydney - Australia’s most expensive real estate market - have reached new heights “due to a restricted supply of homes for sale amid many demand drivers, including wealthy Baby Boomers rightsizing their homes while also serving as the Bank of Mum and Dad to first home buyers, and a buoyant trophy home market.”

However, the report points out that restricted lending capacity has meant many buyers have had to compromise, “leading to stronger demand and price growth for houses in cheaper suburbs, as well as apartments across the city as more people compromise on the type of home they buy.”

While recent data from CoreLogic shows home value growth slowing in the Greater Sydney area, John McGrath believes the following areas are primed for take-off in 2025:

Summer Hill/Dulwich Hill - connected to Sydney CBD by light rail, John McGrath says you can “no longer resist the attractiveness of these little sleeper villages with “some of the best coffee in Sydney”.

Glebe - John McGrath says he “can’t fathom why” this suburb on the edge of the CBD “seems to have slipped under the radar.”

Millers Point - The real estate guru says this harbourside CBD area saw “subdued price growth during the COVID years”, but that’s “created good buying opportunities today.”

Eastlakes - “Handily positioned between the airport and the CBD, young families should be investigating this suburb”, McGrath declares.

Bardwell Park - “Bordering the prestigious Inner West enclave of Earlwood, this little pocket must be on your shortlist,” John McGrath says, highlighting the golf course, its proximity to the CBD and good cafes.

Long Jetty – John McGrath says this Central Coast village is a “little jewel in the crown” and “remains some of the best value on the East Coast.”

Victoria

The McGrath Report highlights Melbourne’s relatively slow home price growth in recent years, putting this down to a combination of government policies like higher land tax thresholds (which have caused many investors to sell up) and Victoria’s nation-leading rate of home completions (733,000 new homes over the past decade).

However, it believes the future is bright for the Victorian capital:

“Looking forward, as Melbourne’s population continues to outpace other cities, and with interest rates expected to start on a downward trajectory from early next year, it is more than likely that property prices will see gains in the medium term.”

John McGrath highlights the following suburbs in the southern capital which he believes will see good value growth:

Keilor East - The real estate guru says this suburb has “all the charm and lifestyle of Essendon with a much lower price tag.” Keilor East is also set to get a new train station as part of the Melbourne Airport Link.

St Kilda East - McGrath says this “little hamlet”, just slightly inland from beachside St Kilda “has parks, transport and good schools on its doorstep” and is “ideal for investors, downsizers and first home buyers alike.”

Glen Waverley - “One to watch”, according to John McGrath, with “Monash and Deakin Universities just around the corner and a plethora of restaurants, shops and transport options at its disposal.”

Altona North - “Less pricey than its waterside neighbours to the south, Altona North still boasts lifestyle.” There’s also the new West Gate Tunnel - due for completion in 2025 - which means “the west is set to become more connected than ever to the CBD and the rest of Melbourne.”

Outside Melbourne, John McGrath sees great opportunities in Spring Gully, a suburb on the outskirts of Bendigo. Its median house price has already increased by 11.5% in the year to June 2024, and McGrath says it is set for a boom.

Queensland

The McGrath Report highlights how Brisbane has “leap-frogged Canberra to record the nation’s second-highest city median dwelling value, behind Sydney’s gold medal spot.”

This reflects very strong price growth over the past four years.

“Since the start of COVID-19 to June 2024, Brisbane median dwelling prices have soared by a staggering 61.5%, compared to a combined capital city price growth of 32.6% in the same period.”

And given Brisbane’s “population growth, infrastructure spend and Olympic City status, there is every reason to expect property price growth will continue in coming years,” the report states.

However, John McGrath believes these Brisbane suburbs are poised for particularly strong growth:

Springwood - This southwestern suburb “is undergoing change as young professionals and families move in, and Baby Boomers move out” and “is expected to remain popular among buyers.”

Forest Lake - This was Brisbane’s first master-planned community built in the early 1990s, but John McGrath believes this southwestern suburb “is now coming into its own” as “properties here offer more bang for your buck than in the inner city.”

Outside of the Queensland capital, John McGrath highlights North Ipswich, as it is “set to benefit from improved Olympic public transport and infrastructure” and is also “a great place to nab a Queenslander at a fraction of the price you could expect to pay” closer to Brisbane.

Caloundra West on the Sunshine Coast is a less expensive housing option than its seaside neighbour, but “the new Stockland Aura development makes it an appealing lifestyle choice.”

John McGrath says he also likes Townsville, where “savvy sea changers are snapping up properties in this surprisingly cosmopolitan city.” He points out that “prices are still on the lower side compared to many other parts of Queensland, and gross rental yield is among the highest in Queensland, making Townsville a safe bet for both investors and owner occupiers.”