February 2025 Australian Real Estate Market Update and Analysis

According to the latest report from Michael’s Daily News, although housing prices were relatively stable in January, downward revisions in performance for November and December led to a -0.3% decrease in national home values over the rolling quarter. This means that over the three-month period from November 2024 to January 2025, national home values dropped by 0.3% overall.

This decline could be related to market adjustments or changes in the economic environment. Moreover, while the housing price growth rate was 9.3% in the same period of 2024, the annual growth rate by January 2025 was less than half of that figure, indicating a weakening in market growth momentum.

Furthermore, housing prices in the affordable segment of the market have risen by 9.4% over the past year, indicating that demand is focused on lower-priced properties, likely because they better align with the budgets of current buyers. In contrast, the high-end market has seen slow growth, possibly due to demand for high-priced properties being affected by economic uncertainty or policy adjustments.

Additionally, there is a divergence between capital city and regional markets. Capital city housing prices have fallen by 0.2% overall, which may be related to a slowdown in economic activity in urban centers or an oversupply. In contrast, regional markets have seen housing prices rise by 0.4%, indicating relatively strong demand in regional areas, possibly due to stable regional economies or lower living costs attracting more buyers.

Based on the above information, we can conclude the overall trend of the Australian real estate market in February 2025 as follows:
 

1.  The overall market is stable but growth is slowing: The annual growth rate in housing prices has significantly decreased, with the lower end of the market performing better than the higher end.

2.  Regional markets are outperforming capital cities: Housing prices in regional markets are rising, while those in capital cities are slightly declining.

3.  Market trend: The overall market performance is weak, but regional markets are relatively stable, showing characteristics of market differentiation.

In February 2025, housing prices in Sydney and Melbourne continued to fall, while Brisbane and Perth maintained growth. Regional markets performed particularly well, with Townsville, Central Queensland, and the Mackay region leading the annual growth charts. As the market environment changes, investors and homebuyers need to closely monitor policy adjustments, interest rate changes, and regional market dynamics to make informed decisions.

Change in housing prices over the 12 months to January 2025:

Rolling quarterly change in values, dwellings (Sydney, Melbourne, Brisbane, Adelaide):

From the chart, it can be seen that the housing prices in Sydney and Melbourne have been declining since they peaked in 2021, while Brisbane and Adelaide have shown relatively stable or upward trends. These trends reflect the different reactions of various cities to the aforementioned factors. According to the latest search results, the outlook for the Australian real estate market in 2025 is expected to be influenced by factors such as changes in interest rates, population growth, and credit policies. Although lower mortgage interest rates may have a positive impact on housing demand, easing credit policies may dampen housing demand.

Why might easing credit policies dampen housing demand? This may sound counterintuitive, so let's explain why:

Risk Perception:

a. When credit policies are too loose, it may send a signal to the market that lending institutions are lowering lending standards, which could increase the risk of loan defaults.

b. Homebuyers and investors may become more cautious, worrying about the stability of the future real estate market, thus suppressing their willingness to buy homes.

Economic Uncertainty:

c. Easing credit policies are sometimes measures taken during periods of economic uncertainty or recession to stimulate economic growth.

d. In this context, homebuyers may feel uncertain about the future economic prospects, thus postponing home purchase decisions.

Market Adjustment:

e. If easing credit policies lead to rapid increases in housing prices, it may exceed the affordability of many potential homebuyers, thus suppressing housing demand.

f. Homebuyers may choose to wait and see, waiting for the market to adjust to a more reasonable price level.

Policy Expectations:

g. Homebuyers may anticipate that overly loose credit policies will not last long and that there may be a risk of policy tightening in the future.

h. This expectation may lead homebuyers to postpone home purchases to avoid locking in high-cost loans before policy tightening.

Easing credit policies may dampen housing demand mainly because it may increase market perception of risk, trigger uncertainty about future economic prospects, lead to market overheating, or cause homebuyers to expect that policies will tighten again. These factors may make homebuyers more cautious, thus suppressing housing demand.

Overall, the likelihood of a significant growth cycle in the coming year remains low, with affordability constraints, normalized population growth, and soft economic conditions expected to persist.