This article is from the Australian Property Journal archive
ONGOING strong population growth, no inflationary outbreak and up to two interest cuts will create conditions that will again see Perth’s housing market lead price rises in 2025, and up to 5% wiped off values in Sydney and Melbourne.
SQM Research’s latest Boom & Bust report for 2025’s base case scenario has Perth values rising 14% and 19%. While at a rapid clip, it will actually represent a slight slowdown from the 25%-plus price rises that have been seen this year.
The report said ongoing strong population growth, combined with strong employment growth and an existing undersupply of homes for sale will keep driving Perth dwelling prices up over the course of next year. Key risks are a slump in iron ore prices from current levels, although the state government’s strong financial position has it well-placed to respond. Forecasted interest rate cuts will also further stimulate demand in the second half of 2025.
“For 2025, we are not anticipating much of a change in these current trends. However, we are now anticipating a cut in interest rates starting from mid-year which will continue the price rise momentum in Perth, Brisbane and Adelaide and keep the price falls in Sydney and Melbourne to single digits,” said managing director of SQM Research, Louis Christopher.
“To be sure, our two largest capital cities, along with Canberra and Hobart will start 2025 off in the red. Indeed, we are currently recording dwelling price falls in each of these cities.
“Current interest rate settings are biting the community more in these cities which on our measurements, are in overvalued territory and/or are experiencing slower economic growth compared to the cities (and states) that have enjoyed good economic growth through a buoyant commodities market and/or have had generous contributions from GST receipts.”
Sydney’s housing market is expected to record a fall in dwelling prices of between 5% to 1%. As the spring selling season draws to an end, there has been evidence of further weakening to the point where Sydney housing prices are now falling – and “there are no leading indicators at this point in time to suggest this current downward trend will reverse”, the report said.
Melbourne is also predicted to continue on with its current correction. Prices are also tipped to fall by a further 1% to 5% over 2025, likely to be felt most in the inner-city ring where SQM has recorded surges in distressed listings.
“However, once interest rate cuts do occur, we are expecting a speedy bounce in demand for Sydney and Melbourne in particular, which both are still experiencing underlying housing shortage relative to the strong population growth rates,” Christopher said.
“This may well mean there is a good window for buyers at this time for our two largest capital cities. However, if I am wrong and rate cuts do not occur in 2025, it is unlikely a recovery will occur in Sydney and Melbourne at any time next year.”
There is a chance the much-anticipated interest rate cuts may not come for a little while longer, with some now expecting the Reserve Bank of Australia to hold any cuts until the second quarter of 2025, rather than make a move early in the year.
The tide has slowly been turning in terms of supply, but the shift is unlikely to make much of a difference. There was a strong flow of new listings in winter and early spring, which wasn’t quite matched by the same level of uplift in buyers, according to Domain.
High mortgage rates and soaring prices has 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.
Brisbane is forecast to record strong dwelling price rises of between 9% to 14% in what will be its 12th straight year of dwelling price increases.
“The leading indicators of stock on market suggest that Brisbane housing shortages are more acute than where the local market stood at the end of 2023. Interstate migration flows are expected to remain robust over 2025 and employment growth is expected to stay positive.
SQM has the longer-term view that the Brisbane housing market is likely to outperform the national housing market through to the 2032 Olympic and Paralympic Games.
Adelaide is not far behind for projected growth, with price gains of 8% to 13% anticipated. Hobart could see a 3% slide or a 2% gain, while Canberra is expected to see a fall ranging to 6% to 2%.
SQM believes a possible change in federal government out of next year’s election will not have an immediate impact upon the housing market, except that auction volumes may fall in the weeks leading up to the election.
“While it is expected that housing and migration will be key debating points, any policy change implemented would be too late to impact the housing market in 2025 yet may have ramifications for market activity over 2026,” the report said.
