Australia's Housing Market Turmoil: Where Will the 2025 Market Head?

Australia's real estate market has always been in the spotlight, with its fluctuations affecting the hearts of countless homebuyers, investors, and industry professionals. Now that the real estate market in 2025 has begun, it presents some trends worth paying attention to. Here is a detailed interpretation of the current market situation.

I. Overview of Housing Prices

According to the latest data from My Housing Market, the national median house price in Australia fell by 0.8% in the February quarter of 2025, reaching $1,151,730. This downward trend is particularly notable as it marks the first consecutive monthly decline since January 2023. Moreover, the rate of decline is the sharpest since September 2022 when rapid interest rate hikes constrained the market.

In contrast, the national median unit price showed a different trend in the February quarter of 2025, rising slightly by 0.2% compared to the January quarter to reach $658,528, and remaining 4.7% higher than the result of the February quarter in 2024

(Data source: Michael Yardney News, 2025/2/27)

II. Performance of Housing Prices in Capital Cities

(1) House Prices

Among the capital cities, Darwin, Adelaide, and Perth were the only cities with house price increases in the February quarter of 2025, rising by 0.6%, 0.2%, and 0.2% respectively compared to the January quarter. In contrast, other cities generally saw house price declines, with Melbourne down by 0.6%, Hobart down by 0.8%, Sydney down by 1.1%, Brisbane down by 1.2%, and Canberra experiencing a significant drop of 3.1%.

Looking at the annual change in house prices, Perth, Brisbane, Adelaide, and Sydney saw increases of 19.4%, 9.9%, 8.6%, and 3.1% respectively over the past year. However, Darwin's annual house price fell by 0.8%, Melbourne's decreased by 1.0%, Hobart's dropped by 1.9%, and Canberra's decreased by 3.2%.

(2) Unit Prices

In the unit market, Perth stood out in February 2025 with a price increase of 1.9%, followed by Adelaide with an increase of 0.8%. Hobart, Canberra, and Brisbane each saw a rise of 0.4%, Sydney had a slight increase of 0.1%, while Melbourne's prices remained stable. However, Darwin's unit prices fell by 4.7%.

In terms of annual unit price growth, Brisbane, Perth, Adelaide, and Hobart achieved significant increases of 23.0%, 20.8%, 16.3% respectively over the past year. Sydney's unit prices also rose by 2.8%, but Canberra's unit prices decreased by 0.3%, Melbourne's dropped by 1.1%, and Darwin's fell by 5.5%.

(Data source: Michael Yardney News, 2025/2/27)

III. Analysis of the Reasons for the Decline in Housing Prices

(1) Increased Market Supply

By the end of 2024, the total number of properties on the market increased by 5% compared to the previous year, and the average time it took for a property to be sold after being listed rose from 28 days to 33 days, indicating a decrease in market activity. The increase in available properties led to an oversupply in the market, resulting in a decline in housing prices.

(2) Reduced Homebuying Affordability

High house prices and interest rates have reduced the affordability for homebuyers. In expensive markets like Sydney, many buyers struggle to afford the high prices, leading to a decrease in demand and consequently affecting housing prices. Moreover, the decline in borrowing capacity has further limited people's home-buying payment ability, exacerbating the downward trend in housing prices.

(3) Interest Rate Impact

Despite expectations of interest rate cuts, interest rates remain relatively high. Since May 2022, the Reserve Bank of Australia has raised interest rates 13 times, pushing the cash rate to 4.35%, the highest level in 13 years. High interest rates have increased the borrowing costs for homebuyers, making it more difficult to purchase a home and thus suppressing market demand.

(4) Investor Selling

Over the past three years, high interest rates and soaring living costs have led landlords to sell their properties. Investors face cash flow problems, with some even using their savings to cover expenses. Additionally, the increase in compliance costs, land taxes, and government fees has eroded investors' confidence in the market, prompting them to sell their investment properties.

(5) Policy Uncertainty

With the upcoming federal election in Australia this year, policy uncertainty has also affected the real estate market. For example, Dutton's statement about banning overseas investors from buying homes could significantly impact the Australian housing market. Furthermore, the government's tax and levying policies have increased the burden on investors, causing them to adopt a cautious attitude towards the market outlook.

IV. Market Trend Analysis

So far in 2025, the housing market in Australia's capital cities has generally shown a weak trend, with house prices falling again in February, although unit prices saw a slight increase that month. Although Brisbane and Perth have been the standout performers over the past two years, their growth rates in February 2025 were the lowest since September 2022. Similarly, Sydney's monthly house price growth rate was the lowest since the end of 2022.

This market weakness is partly due to the seasonal effects of the December and January holiday period, which significantly reduced the activity of buyers and sellers, especially in the high-end market segments. Additionally, the strong increase in housing prices in 2023 and 2024 has brought challenges to affordability, inevitably affecting price outcomes and flattening market cycles.

Nevertheless, it is expected that the recent booming markets of Brisbane, Adelaide, and Perth will continue to achieve solid results in 2025, although the rate of house price growth will be significantly lower than the high levels of 2024. Sydney is expected to continue to perform steadily, while the Melbourne market may remain sluggish, especially the inner-suburban prestige markets, which are still clear underperformers in the region and await a boost in confidence.

However, some underlying drivers will continue to support housing market activity. The recent interest rate cut by the Reserve Bank of Australia (RBA) is expected to reignite housing market activity and drive up housing prices through improved affordability. At the same time, the national economy remains very strong, with continuing low unemployment rates and job growth driving robust wage increases, which will be further enhanced by the recent interest rate cut.

In addition, the return of higher levels of immigration has exacerbated the housing supply shortage, supporting high rents and low vacancy rates in the rental markets of capital cities. Although rental growth is slowing as tenant demand decreases and rental supply increases, high rents and rising prices continue to provide clear incentives for first-home buyers and investors seeking stable investment returns.

Overall, despite the relatively subdued performance of the housing market in Australia's capital cities at the beginning of 2025, national housing prices are still likely to achieve positive growth again in 2025, although at a slower pace than in 2024. However, with the support of a continuing strong economy and lower interest rates, the market still has certain development potential.