Will national property price decline be a blip on the radar?

Australian property prices nationally took a slight backwards step in December but the prospects of an interest rate cut and a raft of other financial factors that will shape 2025 could have a major impact on the current downwards trajectory.

While all capital cities are seeing real estate values decelerate, the monthly and quarterly capital growth gains continue for the perennial performers Perth, Adelaide and Brisbane, while Darwin has also resurrected as market.

But Melbourne’s property market has been Australia’s weakest performing capital city for home price growth since March 2020. According to CoreLogic, it’s median dwelling value of $774,093 is well below the aforementioned trio all in the $800,000s and only above Hobart ($651,043) and Darwin ($496,871).

Sydney, the nation’s largest property market by volume and value, is also weighing on the national market.

Sydney’s fall in December of 0.6 per cent almost matched Melbourne’s (-0.7 per cent) and was a major contributor to national prices sliding 0.1 per cent. It was the first time in almost two years that real estate prices had retreated nationally.

Real estate prospects in 2025

Whether interest rates are cut early or late in 2025 will likely have a major impact on property prices.

While the price of most goods and services won’t be falling, the Reserve Bank expects prices to rise at a more sustainable pace in 2025.

The RBA expects headline inflation will rise in the second half of next year with the end of the electricity rebates, however, trimmed mean inflation, which takes out irregular or temporary price changes, will hit the top of the central bank’s 2-3 per cent target band by mid-next year, and drop to 2.8 per cent by the end of 2025.

Canstar’s Data Insights Director, Sally Tindall, said this year has been one of the toughest 12 months financially for millions of households battling rising rents or super-sized mortgage repayments, on top of ever-growing grocery bills and other essential expenses.

“While 2025 should bring some relief to borrowers in the form of RBA rate cuts, no one knows for certain when they will land and, in fact, there’s no iron-clad guarantee we’ll see cuts next year at all.

“The annual indexation of key support payments will be welcome relief for anyone living off these funds.

“While for many households, this extra money won’t come close to bridging the budget black hole, it will play a small part in helping these families pay for everyday essentials.

“The government’s much-anticipated Help to Buy program, when it does finally get up and running, will provide lower income first home buyers with another potential path on to the property ladder.

“While it does nothing to put a lid on property prices, which is typically the biggest hurdle for first home buyers, it gives low and middle income Australians the ability to own at least part of their own home while limiting the amount of debt they take on.”

REINSW Chief Executive Tim McKibbin told API Magazine it would likely take a rate cut to spur investors back into the market, along with a relaxation of “anti-landlord” reforms.

Strong employment figures might mean those rate cuts are delayed longer than many anticipate.

Real estate markets a mixed bag

The variation among capital city real estate markets was matched by the gap between city and regional areas.

According to PropTrack, capital city areas led the national decline, falling by 0.25 per cent over December. Regional areas were more resilient, rising by 0.03 per cent.

Anne Flaherty, REA Group Senior Economist, said that while December was the first month in which national home values declined in two years, price growth momentum had been slowing since March 2024.

“This slowdown has been seen across both capital city and regional areas, with outperforming markets such as Greater Perth also experiencing this trend.

“Contributing to the slowdown – and reversal – of price growth, the number of properties for sale has been relatively high over the second half of 2024, particularly compared to the same period in 2023 and this has given buyers more choice and we’re seeing them take more time when purchasing.

“While the impact of stage 3 tax cuts which took effect in July bolstered borrowing capacities for some buyers, this has been counteracted by softer economic conditions.

“In particular, interest rate cuts that were originally anticipated prior to 2025 have now been pushed back.

“The best performing regions for home price growth over the past 12 months can primarily be found in Queensland and Western Australia, which account for nine of the top 10 highest growth markets.”

Could a Melbourne property recovery emerge?

Not everyone was writing off the Melbourne property market.

Victoria’s property underperformance is in part due to its success at building more homes compared to the other states but it also continues to see a strong investor exodus due to significant tax deterrents decreasing demand and driving up supply.

Daniel Senia, co-Founder, Greenfield Homes, said Melbourne is currently undervalued, however, this was all likely to change in 2025.

“Lower interest rates will start to free up borrowing capacity for buyers of both established and new homes throughout 2025, however, this increase in demand for homes with continued strong demand for rental properties will lead to a short-term spike in prices, leaving many buyers in the same position they find themselves in now, albeit with higher mortgages at lower interest rates”, Mr Senia said.

“Many sellers that have been on the sidelines waiting to exit stock until demand returns will begin putting homes to market.

“This increase in supply, is unlikely to reduce prices as across most markets, particularly Melbourne, where we have most likely seen the bottom.

“The increase demand from new buyers, with better borrowing ability will negate, if not reverse, the normal market downward pricing dynamics of an increase in established stock.”