This article is from the Australian Property Journal archive
WEAKENED demand, the potential for interest rate cuts, and increased supply are expected to create a buyer’s market in 2025, as price movement continued to slow heading into the new year.
Domain’s House Price Report for the December quarter showed annual price increases slowed to their lowest levels since September 2023.
“It really does showcase a step change across Australia’s housing market,” Domain’s chief of research and economics, Nicola Powell told Australian Property Journal.
“That statement spans all of our capital cities and what we have is a rapid slowdown in either the pace of price growth – so some cities are still rising but just not as fast, or we’ve got stable pricing or a decline over that final quarter of December.
The December quarter saw a sliver shaved off Sydney’s house prices, and modest growth of 1.6% in both Perth and Melbourne. Higher growth was seen in Darwin (2.9%), Adelaide (2.5%) and Brisbane (2.3%), as Hobart topped the capitals with 4.6% growth. Canberra broke even.
Conversely, Hobart was the only capital to see a fall in unit prices over the quarter (-1.5%), while Perth (5.4%) and Darwin (4.4%) recorded the highest growth.
“One of the clear things has been an increase in choice. So any prospective buyer out there will be finding that supply is rising – across the combined capitals stock hit a three-year high for the month of December – which does present, I think, opportunities for the upcoming autumn selling season,” Powell said.
She said affordability issues, rising living costs, and limited borrowing power are also taking their toll on prices.
“The market is finally catching up to the financial pressure many buyers have been facing.
“At the moment, many potential buyers are holding off, hoping for a cash rate cut to improve their borrowing power. As demand decreases and more homes come onto the market, we’re seeing a shift in dynamics that can’t be ignored.”
However, while there has been greater weakness in higher premium markets of Sydney and Melbourne, stronger rates of price growth for units and middle and outer suburbs have padded out overall increases.
“It’s the eighth consecutive quarter house prices have increased, and seventh for units. It’s the first time that’s happened since the period between 2012 to 2015. So it shows the resilience of our housing markets,” Powell said.
Powell said Australia’s housing market is set for “a year of two halves” in 2025, with Domain retaining its expectations that a mid-year interest rate cut will reverse a weak first-half performance and spark price growth.
“The higher-for-longer (interest rate environment) has had a marked impact on people’s decision to buy or sell property, particularly to buy property. I think once we start to see rates being reduced, I don’t think it’s going to be a switch of a flood back of demand, it’s going to take some time and a few rate cuts to come through,” she said.
“But I think it will be enough to tip some people’s decisions to step into the housing market.
“And there is going to be a cohort of buyers that are just waiting. Maybe that’s because they just don’t have enough borrowing capacity, (however) I think the opportunities are there for buyers, and I think there will be some buyers that will be seizing that opportunity this autumn.”
Interest rate hold pushes risk of mortgage stress up
Meanwhile, Roy Morgan data showed 26.8% of mortgage holders were “at risk” of mortgage stress in the three months to November – a small increase on October, but is 3.5% lower than the June figures prior to the stage three tax cuts that increased household income for Australians.
The increase in mortgage holders at risk of mortgage stress in November came after the Reserve Bank left interest rates unchanged at a 13-year high of 4.35% for the eighth straight meeting.
The number of Australians in the bracket has increased by 707,000 since May 2022 when the RBA began its cycle of interest rate increases.
The number of Australians considered “extremely at risk” now stands at 931,000, or 16.9% of mortgage holders, which is significantly above the long-term average over the last 10 years of 14.6%.
Official consumer price index figures showed the headline inflation rate was 2.3% in the year to November, up from 2.1% a month earlier. However, the trimmed mean inflation rate fell from 3.5% to 3.2%, enough for analysts to believe a rate cut at next month’s RBA board meeting is more likely than not.
