For the first time in two years, national home prices in Australia have declined, marking a significant shift in the housing market. According to PropTrack’s Home Price Index, national home values dropped by 0.17% in December, signaling the end of a prolonged period of growth that had lasted since 2023. This downturn is attributed to several factors, including rising living costs, a weakening economy, and growing buyer fatigue.
Capital Cities Hit Harder
The decline in home prices was more pronounced in capital cities, where the average home value fell by 0.35% compared to the previous peak in October 2024. PropTrack economist Anne Flaherty highlighted that the increased number of property listings has eased pressure on buyers, giving them more time and choice, which has reduced the urgency to bid up prices.
“The number of properties for sale has been relatively high over the second half of 2024, particularly compared to the same period in 2023,” Ms. Flaherty noted. “This has given buyers more choice and we’re seeing them take more time when purchasing.”
Economic Impact and Interest Rate Delays
The broader economic slowdown has started to weigh on the property market. Although stage 3 tax cuts implemented in July 2024 initially boosted some buyers’ borrowing capacities, this effect has been countered by softer economic conditions. A major factor contributing to the slowdown is the delay in expected interest rate cuts that were initially anticipated before 2025.
“While the impact of stage 3 tax cuts bolstered borrowing capacities for some buyers, this has been counteracted by softer economic conditions,” said Flaherty. “In particular, interest rate cuts that were originally anticipated prior to 2025 have now been pushed back.”
Notable City Declines
The PropTrack report revealed that several major cities experienced significant price drops in December:
- Melbourne: Prices fell by 0.53%.
- Canberra: Prices dropped by 0.61%.
- Sydney: Home values decreased by 0.29%.
Other cities also saw declines, including Brisbane, where prices inched down by 0.04%, and Adelaide, which experienced a 0.18% drop—its first citywide decline since 2022. However, Perth was the only major capital to report a price increase, with a growth of 0.39% in December, capping off a 17.6% increase in prices for the year.
Growing Affordability Challenges
Flaherty explained that the weakening growth in home values during the second half of 2024 was due to growing affordability constraints. As buyer demand softened and the number of available properties rose, advertised supply levels outpaced demand, further moderating the market.
“Growth in housing values has been consistently weakening through the second half of the year, as affordability constraints weighed on buyer demand and advertised supply levels trended higher,” she said.
Regional Trends and Predictions
Interestingly, while national home values dropped, certain regional markets also saw a slowdown in price growth, particularly in Greater Perth, which had been an outperformer earlier in 2024. PropTrack noted that prices in Melbourne, Canberra, Darwin, and Hobart were still lower than pre-2022 levels, when the Reserve Bank started raising interest rates.
In regional Victoria, prices have not yet fully recovered to the levels seen before the rate hikes, reflecting the ongoing pressure from high interest rates.
The Path Forward
Looking ahead, SQM Research predicts that property prices are likely to continue declining in most areas until the Reserve Bank announces an interest rate cut, which is now expected by mid-2025. However, if the Reserve Bank maintains the current rates through the year, the decline in home values could be more pronounced.
With the shift in market conditions, property buyers and investors may need to reassess their strategies in 2025. The combined effects of higher interest rates, inflation, and affordability challenges suggest that the Australian property market may take some time to stabilize and recover.
For those eyeing the housing market in 2025, it may be wise to wait for more favorable conditions, particularly in anticipation of interest rate cuts, which are expected to play a pivotal role in the recovery of home prices.
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