Reversal of Australia's February Housing Market Decline Trend: In-Depth Analysis

Key Points:

1.The national housing value index rose by 0.3% in February, ending a short-lived and mild downward trend that had lasted only three months.

1.  Among the capital cities, Melbourne and Hobart saw the biggest monthly changes, both rising by 0.4%. Previously, housing values in these two cities had been weak. For Melbourne, this increase broke a ten-month streak of declining housing values.

2.  Conversely, medium-sized capital cities Brisbane, Perth, and Adelaide are no longer the strongest - growing markets.

3.  The improvement in market conditions may also be due to the slowdown in the flow of new listings.

4.  It is a buyer's market, but not everywhere. Data as of February 23 shows that inventory levels in Sydney, Melbourne, Hobart, and the Australian Capital Territory remain high relative to the average of the past five years.

Changes in housing values ​​across Australian cities：

CoreLogic's data shows that the national housing value index increased by 0.3% in February. This ended a short - lived and mild downward trend that had lasted only three months and resulted in a 0.4% decrease in the national housing value measure.

The February increase, while not large, was broad - based. All capital cities and "rest of state" regions saw monthly gains except Darwin (- 0.1%) and Victoria regions (unchanged).

This month also marked a turning point in the growth trend: Melbourne and Hobart led in monthly changes, both rising by 0.4%. They had underperformed before. This rise broke Melbourne's ten - month housing value decline streak.

（CoreLogic HVI，3/2025）

By contrast, medium - sized capital cities Brisbane, Perth, and Adelaide are no longer the strongest - growing markets. Their monthly changes ranged from 2% to 0.3%, and they were overtaken by Melbourne and Hobart. Adelaide and Brisbane still led in rolling quarterly growth, rising 1.2% and 0.9% respectively. However, Perth's value growth has slowed significantly, with recent downward revisions resulting in a quarterly change of just 0.3%.

In Sydney and Melbourne, the market recovery is driven by pricier homes, with the top - quartile home values seeing the biggest monthly gains. This strong performance comes after significant drops in high - value markets and aligns with CoreLogic's earlier research. Specifically, the high - end housing markets in these two cities are particularly sensitive to interest rate cuts. The interest rate cuts expected in February are boosting buyer confidence. In fact, the improvement in housing conditions is more about increased market confidence than immediate improvements in borrowing capacity.

Regional housing conditions continued to show a stronger growth trend

Relative to the capital city counterparts in February, values across the combined regionals index rose 0.4% over the month and 1.0% over the rolling quarter - compared to the 0.3% monthly rise and -0.4% quarterly fall seen in capital city values.

However, there has been some diversity in these trends, with the monthly change favouring Sydney, Melbourne and Hobart over their regional counterparts.

Improved market conditions may also be supported by a slowdown in the flow of freshly advertised ‘for sale’ listings

Counts of new listings coming to market across the combined capitals were tracking -4.7% lower than a year ago over the four weeks to February 23, and -1.5% below the previous five-year average.

Although total advertised supply levels are almost 1% higher than a year ago, listings remain -7.9% below the previous five-year average and the reduced flow of fresh stock to market could be supporting some upward pressure on prices, especially if buyers are becoming more active amid higher sentiment and lower rates.

Although housing markets look to have moved past the recent downturn, the trends from city to city and region to region remain diverse

The rate-cutting cycle is very fresh and is likely to be drawn out.

Lower mortgage rates are clearly a net positive for housing markets, supporting a rise in borrowing capacity and serviceability assessments, but interest rate settings are likely to remain in restrictive territory for some time yet.

Financial markets are expecting the cash rate to be around 3.55% by the end of the year, implying that only two more twenty-five basis point cuts are priced in.

Most economists suggest there could be up to three more cuts of a quarter per cent each this year.

Even under this more bullish assessment, a seventy-five basis point cut would take the cash rate to 3.35%, well above the pre-pandemic decade average of 2.55% and higher than the RBA’s estimated ‘neutral cash rate’ which was revised lower in the latest Statement on Monetary Policy.

Until home loan serviceability improves more substantially, it’s hard to see housing markets moving into a material growth trend.

Markets where housing values have experienced a more significant downturn could be primed for a stronger value growth performance

This is given their renewed affordability advantage.

Hobart (-11.9%), ACT (-7.1%) and Melbourne (-6.4%) have recorded the most substantial declines from their recent peaks. 

Source: Corelogic HVI 3rd March 2025.

More specifically, it is the premium end of these markets that have taken the biggest hit, with the upper quartile of Hobart’s market down -16.4 % from peak levels, while ACT’s upper quartile is down -9.8% and Melbourne's most expensive quarter has dropped - 8.9% in value.

Previous research from CoreLogic noted it has been the premium markets of Sydney and Melbourne that have responded the earliest and most positively to rate-cutting cycles.

Obviously, demand and supply side factors need to be considered also, which could place Melbourne in a strong position if interstate migration continues to improve.

A further lift in consumer sentiment would support purchasing activity

Historically, there has been a close relationship between measures of consumer sentiment and the volume of home sales.

We have already seen a substantial rise in sentiment readings over the past 6 months or so, although the past few months have seen the trend flatten.

If sentiment returns to more optimistic levels, along with the subtle improvement in serviceability provided by rate cuts, it's likely we will see buyer activity lifting.
 

A rise in demand for housing from lower interest rates and a sentiment boost will be partially offset by slower population growth

After peaking in the first quarter of 2023, the Centre for Population expects net overseas migration to reduce further as overseas arrivals continue to moderate alongside a pickup in departures as visas from the temporary surge in migrants expire.

Less migration is likely to flow through to a further easing in rental demand, and, over the medium term, reduced demand for home purchasing.

A buyer’s market, but not everywhere

Based on listing counts to February 23, inventory levels remain elevated in Sydney (+6.9%), Melbourne (+3.9%), Hobart (+25.2%) and ACT (+6.8%) relative to the previous five-year averages.

These are also the regions where prices remain below their recent cyclical highs and where buyers might be able to find a bargain, at least relative to peak levels.

Buyers looking to Perth (-28.0%), Adelaide (-33.9%) or Brisbane (- 21.5%) are still facing a dearth of homes available for sale.

Low levels of newly built housing should also deliver some support to housing values in 2025

Residential construction activity has seen a subtle rise across the detached housing sector, but multi-unit dwelling commencements remain well below average, with little evidence of a pickup in activity due to feasibility challenges amid high construction costs and tight labour markets.