Perth, Adelaide and Brisbane are expected to see the largest house price increases in 2025, with chronic housing supply shortages and upcoming interest rate cuts worsening affordability.
Despite continued cost pressures for buyers, housing demand will continue to drive up prices across the country, online property marketplace Domain forecasts in its 2024 year-end summary, released Thursday.
The traditionally dominant duo of Sydney and Melbourne are expected to see lower price growth than the “quiet winners” as buyers flock to smaller cities where values come from a lower base, the head of research said. and Domain Economics, Nicola Powell.
“You tend to see stronger growth coming from those larger capital cities… but what we’ve seen in 2024 has been Perth, Adelaide and Brisbane that have been the strongest performers and that trend is not expected to change in the future.” future”. 2025,” Dr Powell told AAP.
Tighter supply and tighter rental markets were contributing to faster growth in smaller cities, with housing expected to rise by five to seven per cent in Brisbane, seven to nine per cent in Adelaide and eight to 10 per cent in Perth, compared with growth of four. six percent nationally.
But price growth is still expected to be noticeably slower than in 2024, with Perth house prices rising more than 20 per cent in the past 12 months.
Despite the Reserve Bank of Australia keeping interest rates higher than expected and unaffordability keeping out many buyers, the market showed “remarkable resilience”.
“That resilience was really demonstrated throughout 2024,” Dr. Powell said.
Real estate prices are expected to continue rising in several capitals
“We are trapped between high interest rates and a lack of housing supply… and that lack of supply will not be solved in 2025.”
Dr. Powell expects 2025 to be a year of two halves, with weaker spring sales continuing into the fall before the expected start of interest rate cuts mid-year triggers a surge in demand and stronger price growth in the second half.
Melbourne is forecast to be one of the slowest growing capital cities, with house prices forecast to grow by three to five per cent and unit prices to deflate slightly.
The market weakness partly reflects the withdrawal of investors from Victoria after the state government introduced controversial taxes on investment properties or holiday homes.
First home buyers were making up a larger proportion of purchases, as the government intended, Dr Powell said.
Experts believe Melbourne’s property market will lag behind other capital cities.
But the policy’s effectiveness was complicated by its impact on affordability for tenants, as lower investment activity impacts rental supply, he said.
“At the heart of this must be supply and focus on building more homes and reaching 1.2 million homes (National Housing Deal target).”
Rental price growth is slowing, with rents in capital cities rising 5.3 per cent over the 12 months to November, the slowest annual change since April 2021, according to CoreLogic.
That reflects weaker demand for rentals, as tough affordability encourages renters to form more house-shares or discourages young Australians from moving out of the family home, CoreLogic economist Kaytlin Ezzy said.
“This is reinforced by RBA reporting on average household sizes, which have been increasing in capital cities,” he said.
“Rental growth may recover somewhat during the seasonally strong first quarter of 2025, but beyond any seasonality, it increasingly looks like the rental boom is over.”