The Australian housing market experienced its first price decline in nearly two years in December 2024, signaling a potential shift in the nation’s real estate landscape. This downturn, driven by dwindling affordability and increased housing supply, marks a significant change after 22 months of continuous growth.
CoreLogic Inc., a leading property consultancy, reported a 0.2% dip in its Home Value Index for major cities, the first decrease since February 2023. Major metropolitan areas like Sydney and Melbourne led the decline, registering drops of 0.6% and 0.7%, respectively. This cooling trend reflects the growing challenges faced by potential homebuyers grappling with rising interest rates and soaring property prices.
Graph showing Australian house price index
In contrast, Perth and Adelaide bucked the national trend, exhibiting price increases of 0.7% and 0.6%, respectively. These cities also boasted the highest annual gains, with Perth surging by 19.1% and Adelaide by 13.1%. However, even in these more robust markets, the pace of growth has noticeably moderated in recent months.
CoreLogic’s research director, Tim Lawless, attributed the nationwide slowdown to a confluence of factors, including “affordability constraints weighing on buyer demand and advertised supply levels trending higher.” The combination of escalating property values and tighter lending conditions has significantly impacted borrowing capacity, pushing many prospective buyers towards more affordable markets. This shift in demand underscores the growing affordability crisis gripping the Australian housing market.
People looking at a house for sale
Australia’s housing market has been grappling with a complex interplay of high interest rates, limited housing stock, and robust population growth. These factors have fueled a housing crisis, particularly in Sydney, where the average home price is a staggering 13 times the median income. This stark disparity highlights the immense financial pressure faced by potential homebuyers.
With interest rates reaching a 13-year peak of 4.35%, many aspiring homeowners are finding it increasingly difficult to secure the necessary financing. This affordability crunch has, in turn, propelled rental prices upwards, although the rental market also showed signs of softening towards the end of the year. CoreLogic suggests this easing might be due to increasing household sizes in major cities and a slowdown in migration.
Looking ahead, CoreLogic anticipates a subdued start to 2025, with “multi-speed conditions” likely to persist throughout the year. The possibility of a modest rebound in price growth hinges on potential interest rate reductions. However, the underlying affordability challenges remain a significant headwind for the Australian housing market. The interplay between interest rates, housing supply, and buyer demand will continue to shape the trajectory of the market in the coming months. A sustained period of lower interest rates could potentially stimulate renewed buyer activity, while persistent affordability constraints could further dampen market enthusiasm.
