Home prices across most capitals saw a decline last month, following an increase in available properties for sale. However, anticipated rate cuts suggest that this downturn may be short-lived.
According to the latest PropTrack Home Price Index, Australia’s median home price dipped by a slight 0.1% in January, marking the second consecutive month of national value declines.
The most significant drops were observed in six capitals, with Hobart (-0.5%), Melbourne (-0.3%), and Sydney (-0.2%) experiencing the largest decreases.
In contrast, Brisbane was the sole city to see a price increase, albeit modest at 0.1%, while prices in Perth remained stable. Regional areas across all states, except Victoria, experienced growth, with regional Western Australia posting the highest gain of 0.9%.
The slowdown in price growth during the latter half of 2024, coupled with an influx of new listings, resulted in slight declines in median values. This softening in growth has occurred alongside a surge in stock for sale, giving buyers more choice and reducing the urgency to transact.
Contributing factors to this trend include affordability issues, weaker economic conditions, and the sustained high-interest rate environment. Nevertheless, the drop in prices is expected to be fleeting, especially with recent quarterly inflation data from the Australian Bureau of Statistics (ABS) hinting at potential interest rate cuts in February.
The inflation rate recorded the lowest figure in over four years, aligning with the Reserve Bank of Australia’s (RBA) goal of maintaining inflation within a 2-3% target range before considering rate cuts. Most major banks are now predicting an RBA rate cut in February, with financial market assessments indicating a 95% likelihood of this outcome. With interest rate cuts on the horizon, the price falls seen over the past two months are likely to be short-lived.
As interest rates decline this year, the resulting boost to borrowing capacities, paired with improved affordability and buyer confidence, is expected to stimulate renewed demand and price growth. However, the already strained affordability will likely limit the extent of price increases compared to previous easing cycles, causing the pace of growth to lag behind the robust performance of recent years.
Despite these recent declines, home prices in most markets remain at or near peak levels. Brisbane, Perth, and nearly all regional markets, excluding Victoria and the Northern Territory, are at record highs. Adelaide’s median is just 0.3% below its previous peak, while Sydney’s prices are down by 1%.
Brisbane, having recorded price growth this past month, is now the second-most expensive capital after Sydney. However, buyers in Brisbane are increasingly seeking more affordable options, resulting in varied performance across the city. Unit prices in Brisbane have surged approximately 14% over the past year, compared to just under 10% for houses, with the more affordable Ipswich and Logan regions outperforming the rest of the city. Similarly, in Sydney, where prices remain roughly 2% higher year-on-year despite recent declines, values in more affordable areas are growing faster.
Affordability has driven demand across Sydney, with more budget-friendly regions like the outer west, south west, and Parramatta outperforming over the past year. The most successful capital cities in recent years have largely been the more affordable ones. However, even in the less expensive markets of Perth and Adelaide, price growth has stagnated or reversed due to escalating affordability challenges caused by high-interest rates.
Perth has seen a price increase of 15.38% over the past year, while Adelaide’s prices have risen by 12.41%. The growth in Perth can be attributed to the relative affordability of housing, strong population growth, and a limited supply of new homes. This sharp increase starkly contrasts with Melbourne, where more housing has been constructed in recent years to accommodate its growing population.
Melbourne has experienced a 3.39% decline since January 2024, now sitting 6.12% below its peak from March 2022. As a result, Melbourne has fallen to the fifth-most expensive capital, having been surpassed by Adelaide late in 2024. In Canberra, the total number of homes on the market surged by 22% in 2024, the highest increase among all capitals, according to the latest REA Group Listings Report.
Hobart’s price drop of 0.46% in January was the largest among capitals, although it remains 0.87% higher than a year ago. The city’s median price is still nearly 8% lower than its peak recorded in March 2022, but regional Tasmania has seen record-high prices after a 3.4% annual increase. Darwin’s prices saw a slight decrease of 0.11% in January, but are up 0.8% year-on-year, remaining just under 2% below the peak observed in mid-2022.
Looking ahead, there is still some uncertainty around the timing of rate cuts, which could be a concern for some buyers. However
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