This article is from the Australian Property Journal archive
THE housing market needs to brace itself for an “underwhelming” reaction to an impending interest rate cut, according to CoreLogic, although the outlook for 2025 ahead of a much-anticipated move by the RBA board has shifted to more positive on the back of new inflation figures.
Meanwhile, regional Australia house prices continue to outperform those in the capitals as affordability constraints in the cities and hybrid working tempt more people to treechanges and seachanges.
CoreLogic’s latest data shows three of the eight capitals recorded a decline in home values in January, with Melbourne recording the sharpest decline (down by 0.6%), followed by the ACT (by 0.5%) and Sydney (0.4%). Hobart home values were steady.
Brisbane and Perth continued to record growth (up by 0.3% and 0.4% respectively), but there has been a “clear and steady loss” of momentum in both, particularly in the detached housing sector. Adelaide led growth with 0.7%.
Capital cities values overall fell 0.2%, while values in the combined regional areas of Australia rose a further 0.4% in January, reaching new record highs. In quarterly terms, capital cities have lost 0.7% while the regions are 1.0% higher.
“Despite the fact that the regions had a big uplift through the COVID period, the proportional increase in capital cities was still large enough that the dollar value difference in median values is about the same as what it was pre-COVID. So there’s still some affordability benefit to regional Australia,” CoreLogic’s head of Australian research, Eliza Owen said.
“It may also be the stickiness of remote work trends, with the Australian Bureau of Statistics reporting higher than pre-COVID levels of people who mostly work from home, and that enabling the tight labour market, helped by the negotiating power to work from home as well.”
CoreLogic is expecting a “shallow downturn” in values as interest cuts loom, although the magnitude of a resulting rebound is unlikely to be close to what has been seen in recent years.
The past week’s inflation data showed the underlying inflation measure had eased further, within touching distance of the RBA’s target band, and prompting most analysts and three of the four major banks to tip an interest rate cut at the RBA’s next board meeting over February 17th and 18th.
“For sellers and real estate industry professionals, just brace yourself for maybe an underwhelming reaction to the first cash rate reduction and possibly a more subdued upswing from successive rate cuts,” Owen told Australian Property Journal.
“It is a better outcome for sellers than otherwise who might enjoy stabilising or higher home values and better selling conditions if there’s more credit out in the market. But I think you would need to see successive reductions in the cash rate to firmly put us back into another upswing.
“The other thing to consider is that the lower band of expectations for the cash rate by the end of the year is about 3.35%. So that doesn’t take us to the lows that supported a really strong upswing through COVID. It doesn’t even take us to the pre-COVID decade average that we saw in the 2010s, which was 2.55%.”
Still, the house price and inflation data “probably stems the expected downswing sooner than expected”, Owen said, “and the outlook is a little more positive now for the housing market in 2025”.
Similarly, REA Group senior economist Eleanor Creagh said that with interest rate cuts on the horizon, “the price falls seen over the past two months are likely to be short lived”.
“As interest rates move lower this year boosting borrowing capacities, improving affordability and buyer confidence are expected to drive renewed demand and price growth,” she said.
“However, the stretched starting point for affordability will likely dampen the uplift in prices compared to prior easing cycles, resulting in the pace of home price growth trailing the strong performance of recent years.”
New data from REA Group’s PropTrack also showed regional areas outrunning capital cities in terms of price growth. Over the past year, annual price growth in regional areas was 4.47%, compared to 3.56% in the cities.
It recorded national home prices losing 0.08% in value in January – albeit, they are 45.0% higher than March 2020, when the pandemic began to take hold.
“This softening in growth has occurred alongside a surge in stock for sale, giving buyers more choice and reducing the urgency to transact,” Creagh said.
“Affordability challenges, weaker economic conditions and the sustained higher interest rate environment have also been contributors to slowing – and reversing – growth.”
Weakened demand, the potential for interest rate cuts, and increased supply are expected to create a buyer’s market in 2025, Domain says. It has been tipping a “a year of two halves” , with an interest rate cut to reverse a weak first-half performance and spark price growth.
