Economists representing all major financial institutions projected that house prices would rise by 3 per cent on the annual average in accordance with some combined trends. These trends include affordability, buyer attitudes, and economic issues.
House prices are set to gradually fall from the offset of 2025. Reasons include increased rental accommodation and higher mortgage rates. Increased supply levels compared with 2023 have created more opportunities for buyers, resulting in delays in decision-making and downward pressure on prices. The fall in sales in major cities like Sydney and Melbourne has also led to weakened market conditions, causing prices to stagnate.
Affordability remains a key issue. For example, in Sydney, the borrowing capacity of many households falls well short of median home prices. This, buoyed by high-income earners competing for more expensive properties and homeowners drawing on resale profits, is now narrowing due to dwindling demand for housing. Furthermore, the uncertainty around the general economy and postponed expectations for interest rate cuts have added to the mortgage blow against buyer confidence.
Property values are predicted to stabilise and improve by mid-2025. Steady population growth accompanied by a permanent housing shortage would be the foundation of market resilience. The supply-demand imbalance, with a comparatively low house construction sector capacity, is likely to act as an effective price floor against declines.
Interest rates are also expected to play a role. Though the lower ending of borrowing or cancellation is delayed, demand is likely to improve further when such cuts finally come. Growth in real incomes with moderated inflation could further boost buyer confidence, generating more support for the housing market in the latter half of the year.
Beyond 2025, performance in the property market is expected to improve significantly. Stronger gains are expected in 2026, with price growth being contained by ongoing affordability pressures. Continuous influencing factors are population increases and the generally inadequate supply of new housing.
Along with economic shocks and long-term affordability challenges, potential market threats remain. However, modest growth is likely due to the underlying housing shortage and improving economic conditions.
Complex challenges and opportunities mark the terrain of the Australian property market in 2025. Price drops early in the new year may test the endurance of buyers and sellers, but these moments will not derail the market recovery as economic conditions improve. With elements both structural and economic at work, careful observation and adaptation will be vital for all actors in the year to come.
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