NATIONAL property prices have fallen for the first time in nearly two years and while interest rate cuts in 2025 will likely underpin more growth, any price bounce-back is expected to be modest.
Home values dipped 0.1% in December, led by lower monthly declines in the two big capitals as well as Canberra and Hobart.
Values as tracked by CoreLogic finished the year 4.9% higher, with the median sitting at $814,837.
While further price gains were logged in the mid-sized capitals, growth in Perth, Brisbane and Adelaide has been slowing after a long run of sizeable price increases.
CoreLogic research director Tim Lawless said he was unsurprised by December’s negative national figure.
“This result represents the housing market catching up with the reality of market dynamics,” he said, referring to constrained borrowing capacity and cost-of-living pressures.
Interest rate cuts, expected from the Reserve Bank of Australia in the first half of 2025, should bolster demand for housing, but Mr Lawless was not expecting a renewed phase of strong value growth.
Only a shallow round of interest rate cuts was expected by economists, he explained, which would leave the cash rate well above the pre-pandemic decade average of 2.55%.
Affordability was already near its limits, particularly in Sydney and Adelaide, he said.
“It’s hard to see the housing market responding overly positively when we do have housing affordability quite stretched,” he told AAP.
Changes to macro-prudential policies could be another spanner in the works, with regulators already alert to household debt levels.
“If we did start to see households taking on more debt as interest rates came down, that’s where we could see some additional credit controls coming into place,” he said.
In a welcome development for financially stretched renters, the 4.8% rise in rents over the calendar year was the smallest annual lift since the 12 months ending March 2021.
Despite rents finally starting to stabilise as overseas migration returns to more normal levels and household sizes trend higher, annual growth is still double the 2% pre-pandemic average.
AMP chief economist Shane Oliver is expecting a “year of two halves” for the property market, with weakness in the first six months off the back of still-elevated interest rates and rising unemployment.
“With prices having risen over the last two years, taking them to record levels relative to average incomes despite rising and ‘high’ mortgage rates … it’s possible that the housing market has already moved ahead of future interest rate cuts,” Dr Oliver wrote in a note.
“So it may take longer for the start of rate cuts to boost prices, particularly if unemployment starts to rise significantly.”
He had a 3% increase in national home values pencilled in for 2025, down from the 4.9% gain in the past calendar year.
“Divergence is likely to remain across Australia, with continued stronger but slowing conditions in Adelaide and Perth and weaker conditions in other cities, including further modest price falls in Sydney, Melbourne, Canberra and Hobart,” he said.
A slight decline in Brisbane residential property prices might eventuate, he added.
