What property prices are forecast to do in 2025
Australian house prices are tipped to rise by as much as 6 per cent next year if interest rates are cut, new forecasts reveal.
The chronic shortage of homes in the face of persistent demand will support price growth in 2025, albeit at a slower pace as buyers’ affordability limits will be tested.
House prices averaged across the country are forecast to rise between 4 per cent and 6 per cent next year, according to Domain’s 2025 Forecast Report.
While Sydney house and unit prices are expected to grow in line with the national forecasts, Melbourne would be slightly weaker with 3 per cent to 5 per cent house price growth. But Melbourne units prices will be weaker still, forecast to either hold steady or fall as much as 2 per cent.
Perth is set to lead the nation, where house and unit prices are tipped to rise by 8 per cent to 10 per cent.
Australian property prices are tipped to grow next year – if rates are cut.Credit: Simon Schluter
That will be followed by Adelaide where house and units prices are tipped to grow by 7 per cent to 9 per cent.
Brisbane is also expected to record house price growth of 5 per cent to 7 per cent and unit price gains of 7 per cent to 9 per cent.
Domain chief of research and economics Dr Nicola Powell said the property market in 2025 would be a year of two halves.
“What we are anticipating is the easing in the pace of growth,” Powell said. “Prices are already losing momentum, and we’re expecting that to flow on in 2025.
“We are expecting weaker conditions over that first half and that is largely because we have seen buyers holding back.”
She said most of the expected property price growth would occur in the second half when interest rate cuts are expected.
“If the aggressive increases in inflation are in the rearview and the cash rate is reduced, coupled with rising sentiment and Australians are feeling better about the overall economic outlook, that will be a catalyst in bringing buyers back to market.”
Powell said rising property prices in 2025 across most of Australia would be underpinned by a chronic undersupply of homes and challenges in the construction sector amid a strong demand to get into home ownership.
Prices in smaller capital cities, including Perth, Brisbane and Adelaide, are expected to grow more strongly as more buyers chase affordable price points in those markets, as would the lower end of the Sydney and Melbourne markets with more first home buyers entering the market thanks to the federal government’s Help To Buy scheme that was approved last week.
Domain’s forecast is broadly in line with those of the big four banks. NAB’s latest forecasts expect home values across the capital cities to increase by 4.2 per cent next year. Westpac is forecasting a 3 per cent increase, and CBA 5 per cent, while ANZ is tipping an increase of between 5 per cent to 6 per cent across all homes in Australia next year.
ANZ senior economist Adelaide Timbrell said the growth be driven by mid-sized cities in Australia.
“We’ve seen a population boom in the mid-sized cities in Australia, so in Brisbane, Adelaide and Perth, that’s created huge momentum in housing markets,” Timbrell said. “The number of people who want homes have far outpaced the number of homes being built.”
Sydney, as the most expensive market in the country, would also record an increase as it benefits from the two rate cuts that ANZ has forecast for next year.
“This supports borrowing capacity and the more you can borrow, the more you can bid.”
She added recent income tax cuts coupled with higher- than-inflation wage increases would help support that.
“Wages are now growing faster than inflation which means people in 2025 on average will have more to set aside after paying their essentials than they did before. That supports borrowing capacity, and it’s also supported by the income tax cuts.”
Commonwealth Bank head of Australian economics Gareth Aird is forecasting a 5 per cent lift in national property prices in 2025, saying there will be an impact from the RBA’s interest rate cutting cycle – assuming it happens.
But Aird believed there would be different outcomes across the country, as usual.
In Melbourne and Sydney, prices had recently softened a little, he said.
“It’s likely prices in Sydney and Melbourne will keep sliding over the near term,” he said.
“They are, in Sydney, coming off very lofty levels, whereas Melbourne has been a bit cheaper for 12 months.”
With Elizabeth Redman