Shifting Dynamics in the Australian Property Market: Trends and Predictions

Much of Australia is transitioning into a buyer's market, with properties failing to meet reserve prices, particularly at $1.3 million. Agents are facing increased challenges in closing deals, indicating a significant shift in the property landscape.

Nationally, the property market is on the brink of a downturn, with prices slowing or falling in various cities. The market is likened to a tire with a slow leak, gradually deflating due to rising living costs and higher mortgage repayments, prompting some homeowners to sell and others to rent while waiting for interest rates to decrease.

Despite national trends, some cities like Perth are experiencing a surge in the property market, with rents rising and significant price increases observed. However, the rapid price jumps seen in early 2023 are no longer occurring, and affordability remains a challenge for many potential buyers.

Experts predict that prices in Australia's strongest markets are losing momentum, with buyers becoming more cautious. In Adelaide, a property sold for just over $1.3 million, reflecting a positive outlook among real estate agents for incremental growth over the next year, despite a potential shift towards a more balanced market.

In Perth, property prices rose over 20% in 2024, attributed to a significant undersupply of properties and a strong job market. Experts forecast a continued rise in housing prices between 14% to 19% in 2025, indicating a robust seller's market with eager buyers.

Nationally, property prices increased by 5.5% over the year, with the most significant gains in Perth, Adelaide, and Brisbane. Sydney remains the most expensive capital city with a median home value of nearly $1.2 million, while other cities like Hobart and Melbourne experienced price declines.

Looking ahead to 2025, experts anticipate a potential cyclical decline in property values at the start of the year, which could be counterbalanced by a reduction in cash rates. The market may experience a year of two halves, reflecting the current rate of growth and economic conditions.

Connor Ro West successfully purchased his first home in 2024, expressing excitement after a long search. His experience highlights the challenges faced by first-time buyers in the current market, underscoring the emotional and financial significance of homeownership.

A 25-year-old individual highlights the significant challenges of entering the property market in Sydney, emphasizing that without parental assistance, it is nearly impossible to get on the property ladder. The discussion notes that house prices in Sydney have been declining since October, creating a difficult environment for auctioneers and real estate agents.

During an auction in Sydney's inner West, auctioneer Clarence White observes a cautious market where buyers are hesitant, often contemplating whether to buy now or wait for interest rates to decrease. This cautiousness leads to a need for negotiations, as vendors are compelled to lower their reserve prices to facilitate sales.

Clarence White reports that preliminary clearance rates across Sydney are in the mid-60s, but the actual clearance rate, after analyzing all data, is closer to the mid to high 50s. This indicates a delicately balanced market where properties are not moving quickly, necessitating extra effort from agents to secure sales.

There is a notable increase in properties being sold before auction, according to Clarence. This can occur either due to a compelling offer from a buyer or because there is only one interested buyer, prompting a need for a pre-auction sale. He suggests that buyers currently have a unique opportunity to purchase properties at favorable prices before the market potentially rebounds with rising interest rates.

Clarence advises sellers to have a dream price in mind but to also consider lower price points to facilitate decision-making on auction day. This strategy helps sellers remain flexible, especially as many properties are not meeting their reserve prices and require adjustments to sell.

Real estate agent Marco Erell emphasizes the importance of property presentation, marketing, and correct pricing for successful sales. He notes that buyers are increasingly favoring turnkey properties, especially in light of rising costs for building materials and labor, which gives complete homes a competitive edge in the market.

The discussion touches on a trend where families are moving further out of Sydney to suburbs that were previously overlooked. Notably, areas like St Mary's are experiencing growth, with median property values around $990,000, reflecting a 12% increase over the past year, even as overall Sydney property values decline.

The overall value of the city has decreased, yet areas such as the outer Southwest and outer West are experiencing rapid growth. This growth is attributed to demographic shifts, particularly the movement of Millennials from renting in the Inner City to purchasing family homes, indicating a significant change in the housing market dynamics.

Eliza Owen, head of research at CoreLogic, discusses the mixed price movements across Australia in 2024 and predicts a convergence of growth rates in 2025. She anticipates a recovery in markets that have seen declines, while high-growth markets like Perth, Brisbane, and Adelaide may experience easing. National home values are expected to finish 2024 with a 5% increase, with a similar growth rate projected for 2025.

As of Spring 2024, sellers are facing a market where more properties are listed than sold, leading to lower auction clearance rates and longer selling times. Consequently, sellers are adjusting their price expectations to facilitate transactions, particularly in high-end markets where buyer interest is waning.

Despite 13 interest rate increases and a sustained rate of 4.35% for over a year, the housing market has shown remarkable resilience, reaching a record high in November 2023. This resilience is largely due to well-capitalized buyers who are less affected by rate hikes, although this buyer pool may eventually diminish, contributing to a slowdown in home values.

Historically, lower interest rates lead to increased borrowing capacity, resulting in higher property values and transaction activity. However, the anticipated first cash rate reduction in 2025 may not significantly impact the market, as previous tax cuts did not yield substantial growth. The full rate cutting cycle is unlikely to return rates to pre-COVID levels.

Borrowers may have already considered potential rate cuts in their purchasing decisions throughout 2024, especially if they could manage higher short-term interest rates while anticipating future discounts. However, the absence of these anticipated rate reliefs could be contributing to a slowdown in buyer demand.

There are signs of stress in specific markets, particularly in the outer fringe suburbs, where some vendors may be compelled to sell homes due to high interest rates. Nevertheless, overall, households have managed well under the pressure of rising rates, with only about 1% of mortgage payments being significantly overdue.

The discussion highlights the significant stress faced by households with outstanding home loans, yet most homeowners are empowered to retain their properties if selling conditions are unfavorable. Consequently, new listings are expected to decrease in the first quarter of 2025. The government aims to deliver 1.2 million homes over the next five years, but current private sector conditions, including high interest rates and construction costs, hinder progress. The speaker emphasizes the need for increased government intervention in social and affordable housing, noting that while initiatives like 'Help to Buy' are in place, demand remains strong due to ongoing migration in Australia.

As affordability issues persist, there is a noticeable shift in demand towards units rather than detached houses, particularly in Sydney where the median house value exceeds $600,000. The speaker notes an 8% increase in unit values during spring, compared to a 4% rise in houses, suggesting that 2025 may become known as the year of the unit as more buyers seek affordable options.

The rental market remains competitive, with properties in high demand across most cities. However, rental price increases are occurring at the slowest pace in over three years. The speaker interviews Whitney Thomas, a real estate agent, who reports that the rental market has stabilized in 2024 after fluctuations during and post-COVID. Landlords can raise rents but are limited to specific timeframes, and properties appealing to young families and professionals are particularly sought after.

With vacancy rates remaining below 2%, competition among tenants for rental properties is evident, although recent trends indicate that tenants are finding it slightly easier to secure homes. Thomas advises prospective tenants to be well-prepared with their information to streamline the application process, emphasizing the importance of acting quickly to avoid missing out on desirable properties.

To attract good tenants and secure a favorable rental price, landlords must ensure their properties are well-presented and maintained. This includes making sure all amenities are functional and the property is appealing, which is crucial for attracting long-term tenants.

The rental market in 2025 is expected to mirror trends from 2024, with no rapid rent increases anticipated. Demand for rental properties will remain high due to an ongoing housing crisis, but the market is likely to balance, allowing landlords to receive fair prices while tenants pay reasonable rents. The hope is for increased property availability as investors gradually return to the market.

Currently, there is a noticeable decline in investor activity, particularly among small-scale investors who have been selling their properties over the past year. This trend is concerning, and there is a call for government legislation to support both good landlords and tenants, encouraging renewed investment in the rental market.

In Sydney's Eastern suburbs, a two-bedroom townhouse is projected to rent for between $1,200 and $1,400 per week. Despite a drop in prices across the city over the last six months, renters still face challenges in securing homes, with many competing for limited options, particularly young families.

Nationally, rental prices have increased by 5.3% over the past year, with the most significant rises observed in Perth, Adelaide, regional areas, and Hobart. Currently, only 1.8% of properties are available for rent, with Sydney being the most expensive city, followed by Perth and Brisbane. Although rental costs are expected to remain high, the pace of rent increases is predicted to slow down.

In 2024, the rental market experienced a slowdown, particularly outside of rapidly growing areas like Perth, which continues to see high population growth. The overall improvement in rental conditions was attributed to a slight decrease in population growth and an increase in household sizes, with more individuals opting to live together or return to their family homes.

During the pandemic, many individuals preferred not to live together, leading to a spread-out living situation. This shift has resulted in increased pressure on the housing market, with vacancy rates showing a mixed picture across Australia. While overall vacancy rates are starting to rise slightly, certain areas, particularly Southeast Queensland (from Byron Bay to Gold Coast and Sunshine Coast, including Brisbane) and Western Australia (including Perth and regional areas), continue to experience high demand and a shortage of rental properties.

It is unlikely that rental prices will decrease in 2025. While rents are stabilizing, they are not expected to drop significantly. Areas with high apartment supply may offer better deals, but standard three to four-bedroom houses remain expensive. The sharp price increases seen in 2023 and early 2024 are not anticipated to continue.

Migration trends are beginning to slow down, but the need for skilled migrants, particularly in construction, remains critical to address housing shortages. The current situation presents a circular problem: while skilled migration is necessary to build homes, the demand for housing continues to rise, exacerbating the shortage of rental properties in the long term.

The government is taking steps to address the housing supply issue, which has gained more focus post-pandemic. Historically, the reliance on 'Mom and Dad' investors has been significant, but there is a growing interest in alternative measures such as 'build to rent' projects, which are attracting institutional investment. Tax incentives for foreign investment in this sector have been introduced, although 'build to rent' currently represents less than 5% of total rental stock in Australia.

Looking ahead to 2025, rental markets in cities like Perth are still experiencing rapid growth, with average rents having doubled over the past couple of years. In contrast, markets in Melbourne and Sydney are not seeing the same level of rent increases. Overall, while the rental market remains challenging for tenants, the extreme price hikes observed during and immediately after the pandemic are not expected to recur.