Australian Property Market Trends and Outlook Quarter 1 2025

In the Australian Property Market in 2024, the combined capital city (CCC) median all-dwelling price grew by an estimated 3.8%, reaching $992,400. However, this is a significant slowdown from the 7.9% growth recorded in 2023. Sydney and Melbourne, which play a crucial role in determining overall market trends, are expected to experience continued price stagnation in early 2025. As a result, national property price growth is projected to fall below 2% for the 2025 financial year.

Despite these short-term challenges, a fundamental housing undersupply will prevent an annual price decline. Looking ahead, interest rate cuts expected from mid-2025 will ease financial constraints, leading to a forecasted price increase of 7.3% in 2026 financial year. Units are likely to outperform houses due to affordability considerations. By June 2027, the median all-dwelling price is forecasted to reach $1.12 million, which represents a slight downward revision from previous projections.

Financial Conditions and Affordability in the Australian Property Market

Affordability remains a critical concern as high interest rates and inflation weigh on household budgets. The expected reductions in interest rates from mid-2025 will provide relief to mortgage holders and prospective buyers, improving market confidence. A higher terminal cash rate of 3.35% is now anticipated, which means a slightly slower recovery in property prices through the 2027 financial year.

Rental Market Trends

The rental market continues to experience upward pressure, driven by reduced net overseas migration, an increase in larger household formations, and persistent affordability challenges. In 2024, the CCC all-dwelling rent grew by an estimated 7% to an average of $648 per week. However, vacancy rates, which were at extreme lows, are beginning to rise in some key markets, suggesting a slight easing in rental pressure.

With interest rate cuts expected to lower landlord expenses, the pace of rent increases is likely to moderate. Over the next three years to June 2027, rental growth is projected to average 3.5% annually.

Stock Deficiency and Demand-Supply Dynamics

A core challenge for the market remains the ongoing stock deficiency. Despite high construction levels, demand continues to outstrip supply in many regions, keeping upward pressure on both property prices and rents. This supply-demand imbalance is expected to persist into the near future, further influencing market trends.

City-Specific Insights

• Sydney & Melbourne: These cities are experiencing a loss of momentum in price growth, with affordability constraints limiting demand.
• Brisbane & Perth: Stronger population growth and economic activity continue to support more stable price growth.
• Adelaide, Canberra & Hobart: These smaller capital cities have also seen slowing price growth but remain relatively stable.
• Darwin: A unique market with fluctuations influenced by migration and economic factors.

Conclusion

The Australian property market is undergoing a period of adjustment as affordability constraints and cost-of-living pressures weigh on demand. While short-term growth is subdued, easing financial conditions and ongoing supply shortages will likely drive a renewed upward trend in property prices from mid-2025 onward. Rental markets will also experience some moderation, but affordability issues will persist in key urban areas. Investors and buyers should closely monitor economic indicators and policy changes as they plan their property strategies in the coming years.

As we navigate the complexities of Australia’s diverse property market, making informed investment decisions has never been more crucial. With over 20 years of experience in property investment and a deep understanding of local market dynamics, I’m here to help you guide your clients. Let me help you identify the right opportunities to achieve you and your clients’ financial goals and build wealth. Contact me, Matt Ivers, today to explore how we can craft a tailored investment pathway for your success.