As we quickly approach 2025, the Australian housing market is poised to face a range of influencing factors that will shape its trajectory. From economic conditions and demographic shifts to government policies and global trends, the landscape is set to evolve. Below is my analysis, forecast and update of key attributes, impacting the outlook on Australian Housing Market for 2025.
2025 Forecast in Dwelling Prices (see report here)
1. Interest Rates and Monetary Policy
Interest Rates and Monetary Policy remain a critical factor in the housing market’s performance. The RBA has signalled a cautious approach to interest rate adjustments in response to inflation trends and economic stability of the general economy. The inflation result (more critically, the trimmed mean number), is staying stubbornly high…. Resulting in more of a hold for the short term…
Interest Rate Forecast & Predictions For 2025 | Canstar bank predictions are:
- ANZ predicts that the current level of 4.35% will be the cash rate’s peak, with the first cuts to start around May of 2025.
- CommBank predicts that the current level of 4.35% will be the cash rate’s peak, and that the first cut is likely to occur in February of 2025.
- NAB economists predict that the current level of 4.35% is the cash rate’s peak, with the first cuts to occur around May of 2025.
- Westpac predicts that the current level of 4.35% will be the peak, and that we might expect the first rate cuts to occur around May 2025.
A potential rise in interest rates could impact borrowing capacity, reducing demand for property purchases, particularly among first-time buyers. Conversely, if rates stabilize or decrease, it may encourage renewed buyer activity, especially in cities and higher-demand in the regional locations.
2. Population Growth and Demographic Shifts
Population Growth is a major driver of housing demand across Australia, more particularly in urban centers, such as Sydney and Melbourne. Australia’s population is expected to continue expanding, driven by both natural growth and immigration. Migration policy, aimed at attracting skilled workers, will play a significant role in supporting housing demand. However, Demographic Shifts, such as an ageing population, are also influencing the market preferences, with increased interest in downsizing, retirement communities, and accessible housing.
In a the latest Statement on Monetary Policy – November 2024, the Australian Reserve Banks states: “There is evidence that tighter monetary policy is weighing on housing credit growth” and “Housing prices and housing credit growth have been supported by strong population growth and constrained housing supply”
3. Housing Supply and Construction Activity
The Supply of Housing, particularly new construction, will remain a key factor. A shortage of supply in major cities has driven prices up in recent years, but 2025 may see a shift if Construction Activity continues to increase. Government incentives and policies aimed at boosting housing supply—such as zoning reforms and grants for new developments—could lead to a more balanced market. However, labor shortages, rising construction costs, and supply chain disruptions could limit how quickly new projects come to market.
4. Affordability Pressures and Regional Growth
Affordability Pressures is set to remain a dominant concern, particularly in capital cities where median house prices have soared and will see an increased voice for this raise especially leading into a year where we will see a Federal Election.. I believe that in response, 2025 will see continued interest in regional areas (at a minimum support the existing trends), where lower prices and a desirable lifestyle offer alternatives to city living. The rise of remote work has made regional areas more attractive, leading to increased demand (Regional Growth) in places like the Central Coast and Newcastle of New South Wales, Geelong and Ballarat in Victoria, and the Sunshine and Gold Coast in Queensland.
5. Government Policy and Housing Initiatives
Government Policy in the housing market is expected to play a crucial role in 2025. Policies aimed at addressing housing affordability, such as grants for first-time buyers, stamp duty concessions, and subsidies for new developments, will impact the market. Additionally, the implementation of sustainability Housing Initiatives and green building standards will influence both the supply and demand sides, as energy-efficient homes become increasingly desirable. Watch for potential regulatory changes, including rental reforms, aimed at providing more stability and security for tenants. Policy updates would be expected around the time of the Federal Election.
6. Rental Market Pressures and Rising Demand
The Rental Market is expected to remain under pressure, as demand for rental properties continues to rise. Rental affordability is likely to become a critical issue, particularly in high-demand areas where vacancy rates are low. Rising interest rates and tighter lending conditions will lead some potential homebuyers to delay purchasing, opting to rent instead. As a result, the competition for rental properties (Demand) will also intensify, impacting rental yields and prompting investors to stay engaged in the market.
7. Economic Conditions and Employment Trends
The broader Economic Conditions and outlook, will play a decisive role in shaping the housing market in 2025. Employment trends, wage growth, and consumer confidence are all interconnected with housing demand. A strong job market and wage increases will support property purchases, while economic uncertainty or a downturn could cool the market.
In a the latest Statement on Monetary Policy – November 2024, the Australian Reserve Banks states: “Labour market conditions remain tight relative to full employment. Conditions have continued to ease gradually as expected, though easing in some indicators has stalled recently. The unemployment rate edged higher in the September quarter, but the monthly outcomes have been close to 4.1 per cent for some time now.”
Overall
The outlook for the overall Australian housing market in 2025, is poised to be flat, based on the economic data, interest rates, immigration, inflation and unemployment rate. While demand is expected to remain strong, driven by population growth and regional interest, affordability challenges, interest rates, and government policies will play pivotal roles, the supply of dwellings entering the market is continuing to rise.
Cities, including Perth, Brisbane and Adelaide will continue to see strong demand and regional areas are set to benefit too, from lifestyle changes and affordability factors, such as the Gold Coast, Sunshine Coast, Central Coast, Geelong and Newcastle, will see an increase in prices over 2025. However, Melbourne and Sydney will see challenging times through out 2025, with moderate to no growth in both markets.
Investors, homeowners, and buyers should remain informed about evolving trends and consider long-term factors, ensuring their choices align with the changing landscape.
