Is Slower Growth the New Normal?
Key takeaways
2025 is shaping up to be a better economic year than we have had in 2024.
Slower aggregate house price growth in 2025 is expected, with individual city outcomes dependent upon relative affordability.
Affordability was the reason that lower-priced dwellings rose by more than higher-priced one’s last year.
Supply was the key factor that drove house price growth;
Historically house prices rise following rate cuts; the extent of the rise though is also driven by other economic and financial variables;
Are you wondering what lies ahead for Australia’s housing market?
After an eventful 2024 where dwelling prices rose by an average of 7% nationally, it’s time to unpack what’s driving the market and what investors and homeowners can expect this year.
Here’s what the latest data and analysis from the Bank of Queensland Housing Market Update reveal.
What drove the market in 2024?
Last year, affordability and supply were the two dominant factors shaping the property market according to Bank of Queensland’s Chief Economist, Peter Munckton.
Lower-priced dwellings outperformed higher-end properties in every major city, reflecting many buyers’ financial constraints.
Affordability concerns, compounded by the lack of interest rate cuts, were key drivers here according to Munkton.
Interestingly, unit prices outpaced houses in cities with the highest growth, such as Brisbane, Adelaide, and Perth, because they offered more affordable entry points for buyers.
Conversely, regional areas like South Australia and the Northern Territory saw stronger demand for houses, driven by affordability pressures spilling over from the cities.
Supply and its impact
The availability of properties for sale varied significantly between cities and played a crucial role in price movements.
Cities like Sydney, Melbourne, and Canberra saw higher levels of listings, which tempered price growth.
Meanwhile, Brisbane, Adelaide, and Perth experienced tight supply, pushing prices higher as competition intensified.
This imbalance of supply was a decisive factor, according to the BOQ Report, particularly as new housing construction remained low across the board.
The influence of interest rates
Bank of Queensland’s Chief Economist, Peter Munckton explained that historically, interest rate cuts have been a catalyst for housing price growth.
Since 1980, there have been 10 rate-cutting cycles in Australia, and in each case, house prices increased over the following two years.
However, the extent of these gains varied depending on other economic and financial conditions, such as employment levels, population growth, and credit availability.
For example:
- The late 1980s saw a sharp rise in prices due to significant rate cuts and deregulation of financial markets.
- The early 2020s witnessed strong growth driven by low rates, robust population growth, and quantitative easing policies from the RBA.
However, many of these conditions aren’t present today.
With modest rate cuts anticipated in 2025 (around 0.5%-0.75%), price growth is expected to be more subdued.
What’s in store for 2025?
Looking forward, slower house price growth is anticipated across the board according to Munckton. .
While rate cuts may provide some relief, affordability challenges and elevated listing levels in certain cities will likely constrain growth.
Here’s the forecast for standalone house prices in 2025, based on data from the Bank of Queensland and CoreLogic:
- Australia-wide: +3%
- Sydney: +1%
- Melbourne: +2%
- Brisbane: +5%
- Adelaide: +6%
- Perth: +9%
- Hobart: +3%
- Darwin: +4%
- Canberra: +5%
This means that cities like Melbourne, Hobart, Canberra, and Darwin, where price growth was weaker in 2024, may see better performance in 2025 and beyond.
On the other hand, markets that excelled last year, like Brisbane, Adelaide, and Perth, could face affordability-driven slowdowns.
Final thoughts
The Australian property market is entering a phase of more modest growth.
While some cities will outperform, others may face headwinds.
For seasoned investors, this period presents an opportunity to fine-tune strategies, diversify portfolios, and prepare for the next phase of the market cycle.
If you’re considering your next move, take a close look at the fundamentals driving each market.
As I always say, timing, location, and a deep understanding of local dynamics will be the keys to success.
