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Australia’s housing market is showing signs of cooling, with a slight dip in property values marking the end of nearly two years of consistent growth. CoreLogic’s national Home Value Index fell by 0.1% in December, signalling the beginning of what analysts believe will be a modest and short-lived downturn.
The decline has been driven by reductions in housing values in Sydney and Melbourne, which account for around 40% of the country’s housing stock, alongside a general slowing in other regions.
“A cyclical downswing is likely for early 2025, but it may not be large,” CoreLogic head of research Eliza Owen said, adding that a recovery in housing values is unlikely until broader issues are tackled.
“In the same sense, it’s hard to see any material growth returning to housing values, at least at a macro level, until housing affordability and loan serviceability improves more substantially.”
Demand for housing has been affected by slower economic growth and persistently high interest rates. However, Owen pointed out that supply constraints may help limit the downturn, as sellers might hold off listing properties until prices rise again.
Ultimately, Owen said the likelihood of a significant rise in forced property sales remains low, as unemployment is stable at 3.9% and most mortgaged households are coping with current interest rates.
Other factors could temper the downturn, including rising real incomes as inflation moderates, potential interest rate cuts, and ongoing housing shortages. There’s also the capacity issues in the construction sector, which Owen said could further restrict new housing supply.
The Reserve Bank of Australia (RBA) will hold its first meeting of the year in February, with some analysts predicting a possible reduction in the current 4.10% interest rate, but market expectations suggest any easing might not occur until April.
