Australian Property Market Update

The Australian property market in January exhibited a multifaceted landscape, characterized by stable national dwelling values overall but with notable divergence between metropolitan and non-metropolitan regions. While the amalgamated capital cities experienced a marginal decline in valuation metrics, regional Australia maintained its upward momentum, achieving unprecedented
valuation thresholds.

Metropolitan centers demonstrated varied performance indicators, with some markets displaying signs of price moderation after sustained growth periods while others showed resilience despite broader economic pressures, including interest rate adjustments. Regional markets, conversely, continued to benefit from shifting demographic preferences and relative affordability advantages.
This complex market environment necessitates thorough analysis and strategic consideration from property stakeholders. Homeowners should evaluate their positions within the context of localized market conditions rather than national averages, while investors would be prudent to examine the sustainability of growth trajectories in regional areas against potential future economic
adjustments.

Factors including interest rate projections, employment stability metrics, infrastructure development initiatives, and evolving work arrangement preferences will likely continue to influence market segmentation and performance differentiation across geographical boundaries in the coming quarters.

How have property prices in Australia’s major cities changed over the past year?

Over the past year, property prices in Australia’s major cities have shown diverse trends. Here’s a summary of the changes:

Annual Changes in Median Dwelling Prices

Units vs. Houses: The Skewing Factor

It’s crucial to interpret median values carefully. Comparisons between cities can be misleading due to the varying proportions of units (apartments) versus houses in each market. For instance, Melbourne has a significantly higher percentage of units compared to Brisbane or Perth, which impacts the overall median dwelling price.

Capital City Performance: A City-by-City Breakdown

Across the eight capital cities, performance varied significantly. Melbourne, the ACT, and Sydney experienced declines in home values, with Melbourne seeing the sharpest decrease. In contrast, Brisbane and Perth continued to record growth, although the momentum has noticeably slowed, particularly in the detached housing sector.

Here’s a snapshot of the changes in dwelling values:

These figures highlight the diverse market conditions across the country, with Perth and Adelaide leading in annual growth.

Percentage of Units in the Market:

Understanding Median Prices: A Word of Caution

Median house prices provide a general guide but should not be the sole basis for
investment decisions. They reflect recent sales and can be influenced by the types of properties sold in a given period. Variations in property quality, location within a suburb, and unique features can render median prices less reliable in heterogeneous housing markets.

City-Specific Analysis: Key Trends

• Melbourne remains below its peak, presenting potential opportunities for strategic investors. The market’s underperformance may be attributed to higher stock levels and investor sentiment influenced by state government policies.
• Sydney’s price growth has slowed, but the market remains strong overall. The unit market has performed well, and auction clearance rates indicate continued depth in the market.
• Brisbane has experienced substantial growth since the pandemic and continues to show strong demand, driven by both homeowners and investors.
• Adelaide continues to be a top-performing market, driven by affordability and low stock levels.
• Perth leads the nation in price growth, supported by affordability, population growth, and tight rental markets. However, caution is advised due to potential overvaluation by East Coast buyers and the market’s dependence on the mining sector.
• Hobart is the weakest capital city market in terms of annual price growth and recovery from peak values.
• Darwin is the most affordable capital city, with a relaxed lifestyle attracting interest. However, prices remain below their peak from a decade ago.

What factors are contributing to the current property price trends in Australia?

Economic Factors

Interest Rates

• Impact on Demand: Lower interest rates increase borrowing capacity, allowing more people to enter the market or afford larger loans, which can boost demand and drive up prices. Conversely, higher interest rates reduce borrowing capacity, dampening demand and potentially stabilizing or decreasing prices.
• Current Outlook: As of early 2025, interest rates are expected to stabilize or potentially decrease, which could lead to increased market activity and price growth.

Economic Growth

• Consumer Confidence: A strong economy with rising incomes and low unemployment boosts consumer confidence. This increased confidence encourages more people to invest in housing, driving up demand and prices.
• Current Outlook: Despite challenges like high interest rates and inflation, Australia’s robust labour market supports economic stability, which can maintain demand for housing.

Supply and Demand

• Imbalances: In major cities like Sydney and Melbourne, demand often exceeds supply, leading to price increases. This imbalance is exacerbated by a limited new housing supply and strong population growth.
• Current Outlook: The ongoing supply shortage is expected to continue, maintaining upward pressure on property prices in these areas.

Demographic and Social Factors

Demographic Change

• Population Growth: Australia’s growing population, driven by natural increase and immigration, increases housing demand. Changing household structures, such as more single-person households, also impact demand for different types of housing.
• Current Outlook: Strong immigration is expected to continue, fueling demand for housing and contributing to price growth.

Urbanisation

• Migration to Urban Centers: The trend of moving to urban centers increases demand and prices in these areas. Cities like Sydney, Melbourne, and Brisbane experience higher demand due to better job opportunities and amenities.
• Migration to Urban Centers: The trend of moving to urban centers increases demand and prices in these areas. Cities like Sydney, Melbourne, and Brisbane experience higher demand due to better job opportunities and amenities.

Policy and Regulatory Factors

Government Policies

• Tax Incentives and Grants: Policies like tax incentives for first-home buyers and grants can increase demand by making housing more accessible to a wider range of buyers.
• Foreign Investment Regulations: These regulations can influence the level of foreign investment in the property market, impacting demand and prices.

Zoning and Planning Regulations

• Impact on Supply: Zoning and planning regulations can limit the supply of new housing by restricting development in certain areas. This limited supply contributes to higher prices in areas with high demand.

Market Dynamics

Buyer Confidence

• Market Sentiment: High confidence among buyers can drive up prices as more people are willing to invest in housing. Conversely, uncertainty can lead to market stagnation.
• Current Outlook: As interest rates stabilize and economic conditions improve, buyer confidence is likely to increase, supporting market activity.

Investor Activity

• Domestic and International Investment: High levels of investment from both domestic and international sources increase demand and drive up prices. However, regulatory changes can impact this activity.
• These factors interact to create a complex and dynamic property market in Australia, with trends varying significantly across different regions and cities.

How will declining interest rates affect property prices in 2025?

Impact on Property Prices

1. Increased Borrowing Capacity: Lower interest rates make borrowing cheaper, allowing buyers to afford larger loans. This increased borrowing capacity can boost demand for housing, driving up property prices.
2. Improved Affordability: With lower interest rates, housing becomes more affordable for potential buyers. This affordability can attract more buyers into the market, further increasing demand and prices.
3. Investor Confidence: Lower interest rates can improve cash flow for investors, making properties more attractive. This can lead to increased investment activity, which also drives up prices.
4. Market Sentiment: The anticipation of interest rate cuts can create optimism among buyers and investors, leading to increased market activity and higher prices.

Predictions for 2025

• Interest Rate Cuts: Predictions suggest multiple interest rate cuts in 2025, which could lead to a period of increasing property prices due to cheaper capital and improved affordability.
• Price Growth: Experts anticipate that property prices will increase in 2025, potentially reaching new highs, supported by limited new housing supply and strong demand.

Overall, declining interest rates are likely to stimulate the property market by increasing demand and improving affordability, which can lead to higher property prices in 2025.

For comprehensive market analysis and personalized investment guidance tailored to your specific objectives, we invite you to contact our specialist team at Equitywise Property Group. Our experienced property consultants possess extensive market knowledge and analytical capabilities to provide you with evidence-based recommendations aligned with current market conditions and
forecasted trends.

For more information and detailed insights, get in touch with us. We at Equitywise Property Group are ready to guide you in the right direction and help you make a wiser investment.

-Key-highlights

• Divergent Market Performance: The Australian property market in January shows stable national dwelling values, but with differences between metropolitan (mostly declining) and non-metropolitan regions (still growing).
• City-Specific Trends:
  • Melbourne, ACT, and Sydney experienced declines in home values.
  • Brisbane and Perth continued to record growth.
  • Perth leads the nation in price growth (17.1% annually), followed by Adelaide (12.7%).
• Median Price Caution: Comparisons between cities can be misleading due to different proportions of units (apartments) versus houses.
• Factors Influencing Trends:
  • Interest Rates: Expected stabilization or potential decrease in 2025 could lead to increased market activity and price growth.
  • Economic Growth: A robust labor market supports economic stability, maintaining housing demand.
  • Supply Shortage: Ongoing supply shortage is expected to continue, maintaining upward pressure on prices in major cities.
  • Population Growth: Strong immigration is expected to continue, fueling demand and contributing to price growth.
• Impact of Declining Interest Rates in 2025:
  • Increased borrowing capacity for buyers.
  • Improved affordability.
  • Increased investor confidence.
  • Potential increase in property prices.