Interest rate speculation and affordability challenges weigh on property values
National home values declined by 0.2% in January, dragged down by falls in Melbourne, Sydney, and the Australian Capital Territory, according to Corelogic’s latest housing market update.
Melbourne saw the sharpest drop, with values slipping 0.6% over the month. Mid-sized cities such as Brisbane and Perth remained in positive territory but showed signs of slowing, particularly in the detached housing sector. Adelaide, which has recently led price growth, has also started to cool.
“Adelaide has shown a more resilient trend; although the pace of gains is slowing, Adelaide has led the growth tables over the past few months, taking over Perth’s top position,” said Tim Lawless (pictured above), research director at CoreLogic.
In contrast, regional markets continued to climb, with values rising 0.4% in January to hit new record highs in the housing market report. Queensland’s regional areas led the way, with Townsville experiencing a 25.8% annual price increase, followed by Central Queensland (20.1%) and Mackay (19.5%). While regional housing demand remains strong, Lawless noted that the market has shifted from pandemic-driven migration trends.
“The strongest regional housing markets are now centred in regional Queensland,” he said, adding that the post-pandemic surge in lifestyle-driven relocations has given way to broader demand across non-metro areas.
Home sales and rental market cooling
Signs of a slowdown are also evident in home sales, with the annual transaction volume falling from a peak of 535,000 in October 2024 to 526,000 by January.
The rental market showed a slight uptick in January, rising 0.4% nationally after a subdued second half of 2024. However, the broader trend points to continued easing in rental growth. Annual rent increases stood at 4.4%, more than double the pre-pandemic average of 2.0%, but growth is decelerating in key cities.
“The six-month trend in rental growth has turned negative across the two largest markets, Sydney and Melbourne, with rents down 0.4% and 0.6% respectively,” Lawless said, noting that unit rentals have been particularly affected.
Regional rental markets, however, have remained stronger than their capital city counterparts, with rents rising 1.6% in the past three months compared to a 0.3% increase in urban areas.
Interest rate outlook and market impact
Speculation about interest rate cuts is growing, with financial markets anticipating the Reserve Bank of Australia (RBA) could move as early as February.
“Following a lower than expected core inflation outcome for the December quarter, there is a good chance we will see the first rate cut in February,” Lawless said.
Market forecasts suggest the RBA could deliver three to four 25-basis-point reductions in 2025, potentially bringing the cash rate down to between 3.35% and 3.6% by year-end.
Lower mortgage rates would provide some relief for borrowers and improve affordability, but Lawless warned that affordability constraints remain a key challenge. While some cities, such as Hobart and Melbourne, have seen price corrections since their market peaks in 2022, other areas – particularly Perth, Adelaide, and Brisbane – have experienced sharp price growth, making housing less accessible.
“A rise in demand for housing from lower interest rates will be partially offset by slower population growth,” Lawless said, pointing to declining net overseas migration as a factor that could ease housing demand over the medium term.
Tighter credit policies could also weigh on the market. The Australian Prudential Regulation Authority (APRA) has raised concerns about financial stability risks, and the RBA has highlighted household debt as a key vulnerability.
“Any material rise in household debt ratios could be the trigger for tighter credit policies which would likely put a dampener on housing demand,” Lawless said.
Outlook for 2025
While lower interest rates could support housing demand, ongoing economic uncertainties and affordability constraints are likely to keep growth in check. The supply of newly built housing remains limited, despite a rise in dwelling approvals, particularly for detached houses in Western Australia and South Australia.
“All things considered, the likelihood of a significant growth cycle over the coming year remains low,” Lawless said.
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