CoreLogic reported a slight 0.1 per cent rise in home prices for November, following a revised 0.2 per cent increase in October. However, growth varied across regions, with declines in Melbourne, Sydney and Hobart, while Brisbane, Perth and Adelaide saw slower but still strong gains.
The data also suggested a cooling trend in rental markets, with annual rental growth dropping to 5.3 per cent, the slowest pace since April 2021.
Commenting on the data, AMP chief economist Shane Oliver forecast that average property prices will grow by 2–5 per cent in 2025. He described the year as “a year of two halves”, with weaker market conditions expected in the first half, followed by stronger performance in the second half driven by anticipated interest rate cuts.
However, Oliver warned that without swift rate cuts, the gap between buyers’ ability to afford properties and current home prices could widen further.
“The risks here appear to be rising,” he said.
“Access to the ‘bank of mum and dad’ is likely to continue, but savings buffers for lower-income earners appear to have fallen sharply, and falling job vacancies point to higher unemployment ahead which may also make it harder for struggling home owners to work extra hours to help service their mortgages,” Oliver added.
Signs of softening in the property market also include cooling auction clearance rates, a higher number of new listings in most cities, suggesting rising distressed listings due to high mortgage rates and reduced sales activity.
“Divergence is likely to remain wide though across Australia with continued stronger but slowing conditions in Brisbane, Adelaide and Perth for now and weaker conditions in other cities including further modest price falls in Sydney, Melbourne, Canberra and Darwin over the next six months,” Oliver said.
Moreover, the ongoing delay in rate cuts combined with rising unemployment is expected to further contribute to price weakness as buyers tend to put their decisions on hold while distressed listings could further accelerate, the chief economist noted.
“The key to watch will be interest rates, unemployment and population growth,” Oliver highlighted.
“Further delays in rate cuts, a sharply rising trend in unemployment and a sharp slowing in net migration could result in a much sharper fall in property prices, reflecting the divergence between home buyers’ capacity to pay and current home price levels.”
Oliver concluded that a downturn in the property cycle strengthens the case for the Reserve Bank of Australia to begin interest rate cuts in the first half of next year, as the fading wealth boost and negative wealth effects in some cities begin to take hold.
A transitional period for real estate
Interest rate cuts, expected by most to occur mid-2025, are anticipated to bring stability and restore confidence in commercial real estate markets, according to a fund manager.
“We believe that FY25 will be an important transitional period for real estate markets,” Centuria Capital said last week in a market outlook.
The firm highlighted the benefits of rate cuts in Europe, the US and New Zealand, with expectations that a similar easing would take place in Australia next year.
“This is already playing out in New Zealand where there have been multiple reductions in the official cash rate,” the firm said.
The firm noted that this year has been challenging for the real estate sector, with higher debt costs and anemic gross domestic product growth weighing on performance.
“In fact, outside of the pandemic period, Australia experienced its lowest economic growth since 1992 when the nation was recovering from the recession ‘we had to have’.”
