‘Six months behind’: What property prices will do in 2025

The property market is set to start 2025 in the same fashion as it ended last year, favouring buyers over sellers until there is a rate cut – if it materialises.

Prices in Sydney rose by 2.3 per cent and Melbourne fell (-3 per cent) on CoreLogic data by the time 2024 came to a close.

It was a culmination of higher rates since 2022 weighing on buyers’ capacity to borrow, as well as sellers listing their homes in droves.

Experts say more properties will hit the market this year, and price-sensitive, weary buyers will tip the balance in their favour.

ANZ senior economist Adelaide Timbrell said rate cuts would be the major catalyst for the property market to pick up again.

“[This will be the case] as long as we don’t see unemployment drop to those really low levels during that high inflation period and as long as inflation keeps going in that right direction,” she said.

“These two should be enough for the RBA to cut in 2025,” she said. “Rate cuts and income growth will help with borrowing capacity, which supports an increase in housing prices.”

Until then, she said affordability pressures would force larger household formation, a natural trend to cope with rising housing costs.

“Affordability pressures will force a higher number of people [into] homes, whether that’s younger people moving back in with parents due to affordability or people deciding to move from their own units to share houses,” Timbrell said.

“This creates more supply or reduces demand without changing the number of physical homes.

“The more people you squeeze into one home, the more spare homes there are for prospective renters or buyers.”

PRD Real Estate chief economist Dr Diaswati Mardiasmo said Australia was heading in the direction of rate cuts as it was six months behind international peers such as the US, the UK and Canada, which have already begun cutting rates.

“We were six months behind in increasing so we’re six months behind in cutting. Our inflation is much closer to the 2 to 3 per cent benchmark that the RBA considers as a healthy target,” she said.

“All the buyers are really holding out for that. You can see that because there are a lot of sticky buyers where they are waiting for it to happen,” she said. “They’re going to opens and auctions, but the clearance rate has been around 60-ish per cent [in 2024] in Sydney and Melbourne, and it hasn’t really moved.”

She said there were more buyers in the market, in particular first timers who would be first to move when interest rates were cut.

“We’ve had about a 25 per cent increase in first home buyers from 2019 to 2024. We only had about [an] 8 per cent increase in the past 12 months,” Mardiasmo said. “It does show they are wanting to get into the market, but they are getting priced out.”

If the federal government’s Help To Buy Scheme starts in July it is possible it would coincide with better borrowing power, too.

BresicWhitney chief executive Thomas McGlynn said sellers who had realistic expectations would be able to strike a deal.

Auction guide $1,350,000

9/27-37 Ida Street, Sans Souci NSW 2219

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“That same energy is going to be there to start 2025, which means that sellers who are willing to listen to the market and listen to buyer feedback will be rewarded with sales, and sellers hoping for a price that may have been there in 2022 or 2023 may not sell,” McGlynn said.

He said while Sydney would record higher total listing volumes to start the year, the healthy buyer pool would remain cautious.

“Buyers are prepared to buy, but they are really not prepared to pay more than market value.”

He also forecast the gap between Sydney house and unit prices would become even narrower as buyers chased affordability.

“We’re probably going to see the value of apartments and houses come closer together,” he said.

Wakelin Property Advisory director Jarrod McCabe said Melbourne would be a buyers’ market until interest rates fell.

“From a Melbourne perspective there [are] going to be some really good opportunities from a buyer’s point of view,” McCabe said.

“There’s a lot of issues that are bringing more properties to market because of the extra costs associated with holding on to them. Then, on top of that, [there are] higher rates.”

That influx of homes on the market would give buyers choice and would continue to put downward pressure on prices.

“Even if there are interest rate cuts, they’re not likely to have an immediate impact either – it wouldn’t be the panacea to turn things back around.”