As we step into 2025, discussions around the Australian property market remain a hot topic, with some speculating about a potential crash while others predict sustained growth. Despite fears voiced by some experts, such as American economist Harry S Dent, who suggested a 50% drop in Australian property values, the market has shown remarkable resilience. Analysts like AMP’s chief economist, Dr. Shane Oliver, believe a crash is highly unlikely, citing strong underlying fundamentals.
A Look Back at 2024: Market Trends and Performance
In 2024, the Australian property market experienced a slight cooling in growth rates, but it remained steady. CoreLogic’s Home Value Index (HVI) marked 21 consecutive months of growth, although the annual growth rate slowed to 6.0% in October, down from a peak of 9.7% in February 2023. This moderation was primarily due to affordability pressures stemming from high interest rates.
The national median property price stood at $874,827 for houses and $668,234 for units by the end of 2024. Cities like Sydney continued to lead in prices, while more affordable markets such as Perth and Brisbane became hotspots for buyers seeking value. Perth recorded an impressive 24.4% year-on-year growth, while Melbourne saw a slight decline, illustrating the diversity of Australia’s property market.
Key Factors Shaping the Property Market
1. Supply and Demand Dynamics
One of the strongest factors supporting property prices is the persistent imbalance between housing supply and demand. Population growth, driven by a 26.3% increase in overseas migration in 2023, has placed immense pressure on the housing market.
However, housing supply has struggled to keep pace. Labor shortages, rising building material costs, and low approval rates have hampered new construction. The federal government’s goal to deliver 1.2 million new homes by 2028 is ambitious but may fall short, with projections suggesting around 800,000 completions. This chronic undersupply has kept property prices elevated.
2. Resilient Homeowners
Despite higher interest rates, mortgage arrears in Australia remain low. Many homeowners have relied on savings accumulated during the pandemic, support from family, and the strong job market to stay afloat. The unemployment rate stood at 4.2% in July 2024, and labor force participation increased, further stabilizing the market.
3. Regional Market Variations
Australia’s property market is far from uniform. While Perth and Brisbane have experienced strong growth, cities like Melbourne have seen stagnation or slight declines. This regional diversity prevents national-level shocks and supports overall market stability.
4. Interest Rates and Inflation
After a period of high interest rates, signs point to an easing monetary policy in 2025. Inflation has shown a downward trend, falling from 3.8% in June to 3.5% in July 2024. The Reserve Bank of Australia (RBA) is expected to cut rates by mid-2025, which would improve borrowing conditions and potentially boost buyer activity.
Will House Prices Rise or Fall in 2025?
The Australian property market is expected to continue its upward trajectory, albeit at a moderated pace. Factors such as strong migration, ongoing infrastructure investments, and the anticipated rate cuts are likely to drive demand. According to the Domain Forecast Report, cities like Perth, Adelaide, Sydney, and Brisbane are poised for further growth, with median house prices expected to exceed record highs by the end of FY25.
The Rental Market Outlook
The rental market will remain tight in 2025 due to the ongoing housing shortage. Rising demand, particularly in lifestyle suburbs and affordable regions, is expected to push rents higher. Investors have an opportunity to target areas with strong rental yields, as more Australians turn to renting in response to affordability challenges.
Adopting a Borderless Investment Strategy
With market dynamics shifting, savvy investors should consider a borderless approach. Expanding property searches to include affordable suburbs and regional markets can provide access to areas with strong growth potential. A well-balanced portfolio comprising high-growth cities and affordable regions can yield both short-term rental income and long-term capital appreciation.
Final Thoughts
While affordability pressures and high interest rates have slowed growth, the Australian property market remains underpinned by strong fundamentals. Supply shortages, population-driven demand, and resilient homeowners have kept the market steady. As we look ahead to 2025, the anticipated interest rate cuts and continued migration are expected to sustain property prices, ensuring that a crash remains unlikely.
