As we close the chapter on 2024, it’s clear that Australia’s property market proved its adaptability and resilience, even in the face of inflation and affordability challenges.
Despite ongoing challenges like rising living costs, affordability pressures and stubbornly high interest rates, the property markets have defied expectations.
According to Corelogic figures, a combination of chronic housing undersupply and strong population growth kept demand robust throughout 2024.
Predictions expect the start of 2025 to likely see a continuation of the buyer demand exhibited towards the end of 2024, including a small decline in national home values in the first part of the year.
A change in the official cash rate target could then mark an inflection point, increasing demand in the second half of the year and pointing to analyst expectations for a ‘shallow’ rate-cutting path, with the forecasts across the big four banks placing the cash rate between 3.1% and 3.6% by the end of 2025.
Buyers Seek Value
Responding to the elevated interest rates and affordability challenges, reports show buyers flocked to more affordable segments of the market throughout 2024.
Through the year to November, the bottom quartile of national market values rose 10.3%, far outperforming the middle of the market and upper quartile of home values, where stretched affordability constrained further growth.
The top growth house markets were all located in Perth, and half of the suburbs had a median house value below $661,000.
The top growth unit markets were located across Perth, Brisbane and Adelaide, and each of the top 10 had a median unit value below $600,000.
As the wealthy, high-deposit buyer pool may thin out the longer the cash rate sits at 4.35%, low-value markets may lose their appeal as demand pushes previously affordable markets higher.
Key Drivers and Predictions for 2025
Interest Rates Undoubtedly Key
With affordability stretched to its limits, anticipation is that even modest cash rate cuts could reinvigorate buyer demand.
Experts believe the timing of the cuts will have a profound impact on shaping the market, potentially creating a year of two halves with a weaker January to June and stronger last half of 2025.
Federal Election and Housing Policies
As housing affordability becomes a political hot topic, 2025 could see bold reforms aimed at addressing supply and affordability issues.
Policies such as first-home buyer incentives, reforms to negative gearing, and land tax replacements could significantly influence market dynamics.
Rising Demand for Density
Australia’s cities remain among the least dense globally, but increasing population pressures will likely drive a surge in medium-density housing.
Townhouses and smaller apartment buildings are expected to gain popularity, particularly in middle-ring suburbs, as planners address affordability concerns.
Sustainability Here to Stay
Recent research highlights that buyers increasingly prioritise energy-efficient features like solar panels, battery storage and water-saving systems.
Sustainable homes are not just cost-efficient but also attract a price premium, making them a smart investment for the future.
2025 Market Outlook
As of the November Statement of Monetary Policy, the RBA has a base assumption of rates moving lower by mid-2025. NAB, ANZ and Westpac have forecast May for the first rate cut, while CBA has penciled in February.
CoreLogic estimates that an affordable dwelling purchase for the median income household in Australia under the current average owner-occupier rate (6.27%) would be around $507,000 – a far cry from the current median of $813,000.
Even in the event of average mortgage rates reducing by 125 basis points (assuming the cash rate reduces to 3.1%, and reductions are passed on to mortgage rates in full), this only takes an affordable purchase price to $581,000.
The slowdown in rent growth seen in 2024 is also expected to continue in 2025, as rental demand continues to be squeezed amid high cost of living constraints.
However, there are also tailwinds for households that could boost buyer and renter demand in 2025.
Wages growth, while slowing, is well above the pre-COVID, decade average, at 3.5% in the year to September.
Real household income has been boosted by the Stage 3 tax cuts, despite this boost to income seemingly being saved by households for now. Real household income growth is expected to pick up further as inflation continues to ease in 2025.
While market conditions are broadly expected to improve off the back of a cash rate reduction in 2025, there will still be considerable diversity in housing market performance.
2025 House Prices
For seasoned investors and first-time buyers alike, 2025 presents both challenges and opportunities.
Whether it’s the expected interest rate cuts, government policy changes, or evolving buyer preferences, staying informed and adaptable will be the key to success in the coming year.
Home values in 2024 saw a 5.5% increase, with the combined value of Australian homes surpassing $11 trillion.
The market’s initial strength in 2024 gradually waned due to declining demand, rising levels of advertised supply, and a shifting outlook for inflation and interest rates.
Growth conditions varied significantly across the market, with annual value changes ranging from a -2.3% decline in Melbourne to a 21.0% rise in Perth.
Regional markets exhibited similar diversity, with values falling by -2.7% in regional Victoria and rising by 15.5% in regional Western Australia.
However, even in the growth markets of Adelaide, Brisbane and Perth, there are distinct signs of a cyclical slowdown, with the quarterly pace of gains easing over the course of the year, according to the latest figures.
Interestingly, the quarterly value decline across weaker capital city performers has shown marginal signs of easing toward the end of 2024.
This could signal some stabilising of values in weaker markets through 2025, and a narrowing of the range in capital growth over the next 12 months.
New housing construction also remains subdued across the country, which experts believe will result in a positive outlook Australia’s house prices in 2025.