This article is from the Australian Property Journal archive
AUSTRALIA’S housing market is set for “a year of two halves” in 2025, with a mid-year interest rate cut to reverse a weak first-half performance and spark price growth, while housing supply looms as a key federal election battleground.
Domain is expecting prices to keep rising in 2025, though at a slower pace, due to affordability pressures and more buyer options as more listings come to the market.
“I think we’re likely to see a weaker first half. And what we’re likely to see is once we see a few cash rates coming through, they will likely to be a catalyst bringing buyers back to market, which will help build some momentum,” Domain’s chief of research and economics, Nicola Powell told Australian Property Journal.
“It will create a year of two halves in 2025.”
With core inflation holding high, labour markets holding tight, and rising geopolitical risk, hopes for a rate cut early in the new year have been pushed back further and further. Domain is expecting a cash rate reduction mid-year.
“Once we start to see the cash rate being reduced, what that’s likely going to do is improve consumer confidence,” Powell said.
Domain is picking growth in Sydney of 4% to 6% for both houses and units in 2025.
“That is a much slower rate of growth compared to what we saw in 2024. We’re likely to see weaker price outcomes in the first half. We could see a citywide reduction over the first quarter or second quarter of 2025, but we’re expecting a rate cut will be the spark to bring buyers back to market, particularly if we see multiple rate cuts coming through.”
Melbourne’s housing market is tipped to see 3% to 5% growth, while unit prices will fall slightly.
“Melbourne has had a challenging property market for some time,” Powell said.
“And what that’s created is value is building up over time. I think that what we’re likely to start seeing is those owner occupiers that are local to Melbourne will be realising that now is a great time to make their move on the property market.
“It’s very unusual for a property market like Melbourne to go sideways for a couple of years, which is essentially what we’ve seen.”
Perth is again forecast to lead national growth, with another 8% to 10% increase, putting it close to a median house price of $1 million. Brisbane (up by 5% to 7%) and Adelaide (up 7% to 9%) will join Sydney, Melbourne and Canberra with median house prices above $1 million.
High mortgage rates and soaring prices have driven housing affordability to its worst level on record, as Australians work overtime, take on second jobs, and even skip on healthcare costs in a bid to break into the heated market. Those, combined with increasing listings have slowed growth to a crawl, and prompted CoreLogic to last week declare the national upswing in home values “all but over”.
SQM Research’s latest Boom & Bust report offered a base case strong population growth, no inflationary outbreak and up to two interest cuts, which it said would see Perth’s housing market lead price rises in 2025, and up to 5% wiped off values in Sydney and Melbourne.
Eleanor Creagh, REA Group’s senior economist told Australian Property Journal last week that PropTrack is expecting that home prices are going to continue to lift in the period ahead, “although it’s likely that the pace is going to remain much more moderate and softer”.
Domain is tipping Canberra houses will see 3% to 5% growth in 2025, and units 2% to 4%.
Across the regional areas, NSW will see modest growth, values are expected to fall in Victoria, and Queensland will see stronger growth of 6% to 8% for houses and 5% to 7% for units.
Housing supply a key election battleground
Powell said the country is “stuck between high interest rates and an undersupply of housing”.
“That undersupply of has been one of those key forces that has driven prices higher over 2024. And that rising price has happened during a significant period of financial uncertainty. The undersupply of housing hasn’t gone away, and it is going to still be here in 2025 and become a key battleground in the election.”
The federal election is due to in May, although there is a chance it could be held before then. Parties will be spending their summer sharpening their policies to make them election-ready.
Labor’s housing policy has hinged on the National Housing Accord, which aims to deliver 1.2 million “well-located” homes over five years amid a national housing crisis that has seen rents surge and vacancies hover around record lows. The Coalition has in recent weeks focused on high international student and migration levels as a cause of the housing shortage.
Labor has had recent wins in Parliament, with its Help to Buy scheme and build-to-rent developer tax concessions both passing through the Senate. Negotiations with Greens forced a $500 million boost to social housing funding and build-to-rent leases extended to five years in exchange for passage for the build-to-rent bill alongside dozens of others on a hectic final sitting day of Parliament for 2024.
“An election itself doesn’t necessarily influence the housing market or change people’s decisions to buy and sell. What changes people’s decisions are the key housing policies, which will speed up or delay somebody’s decision,” Powell said.
“If you’ve got a strong policy that does change big taxation changes around negative gearing and capital gains tax, for example, that can make an impact. And particularly if it’s a policy that has a grandfathering approach..
“That might also be a policy around co-ownership, first home buyer incentives, whether it’s stamp duty initiatives or whether it’s something like Help to Buy.
“People change their decisions based upon the prospect of a policy change. It does depend upon what’s on the table at the time.”
