After 21 months of growth in the Australian housing market (with the national home price index rising by 14.31 points per 3T), the latest data from CoreLogic suggests the market is entering a downward cycle. After peaking in October 2024, the national home price index (HVI) fell slightly by 0.011 points per 3T in November and another 0.11 points per 3T in December. This trend is not surprising, as home price growth has been gradually slowing since June 2024.
This cooling is accompanied by other market changes: by the end of 2024, national home listings increased by 51% year-on-year, while the average time it takes to sell a home increased to 33 days from 28 days a year ago. What does this mean for buyers and sellers? Here are some key observations about the current housing market downturn.
1. High house prices and interest rates put increasing pressure on buyers
The gap between house price growth and household income and borrowing capacity is widening. According to CoreLogic analysis, the "affordable" house price for an average Australian household with a pre-tax income of 30% to pay a mortgage and a deposit of 20% should be A$513,000, but the current national median house price is A$815,000.
This gap typically narrows due to falling home prices, rising incomes, or lower interest rates. However, over the past two years, despite rising interest rates, some buyers have continued to purchase, likely anticipating a fall. However, as interest rates remain high, demand from these buyers is declining.
2. The interactive effect of seasonal factors and housing price declines
The first noticeable decline in house prices occurred during the seasonally low season for the market. Although seasonally adjusted data shows that the HVI actually increased slightly by 0.1% in December 2024, the overall market still showed signs of weakness, with house prices in Sydney, Melbourne and Canberra in particular still falling.
The national seasonally adjusted HVI index saw an average monthly growth of only 0.1% in the past three months, a significant slowdown compared to 0.6% in the first three months of 2024.
3. The downward trend is currently concentrated in a few markets, but may expand
By December 2024, only five of the country's 15 major markets will see house prices decline:
- Melbourne saw the biggest drop (-0.7%), followed by Sydney (-0.6%), Canberra and Hobart (-0.5%), and regional Victoria (-0.3%).
- Other regions saw growth, such as South Australia, which saw a 1.2% increase.
The performance of Sydney and Melbourne has a particularly significant impact on the national data as they account for 501% of the value of homes sold in Australia. However, the cooling trend in the market is spreading, for example, Adelaide's quarterly growth slowed from 3.61% in the third quarter to 2.11% in the fourth quarter.
4. This downturn may not be significant
Cyclic adjustments in the Australian housing market are generally small. The largest national HVI decline in history was only -7.7% (from October 1982 to March 1983). This market resilience stems in part from strategic seller behavior, such as reducing listings when prices fall. Furthermore, a tight labor market and the ability of households to cope with high interest rates reduce the likelihood of forced sales.
In 2025, several factors may support market demand:
- Revenue growth: As inflation eases, real income growth may stimulate buyer demand.
- Falling interest rates: If interest rates fall, lending capacity will increase significantly.
- Housing supply shortage: Weak construction industry further restricts new home supply.
Conclusion: A short and mild adjustment period
Taking all of these factors into account, we anticipate this housing market downturn will be short-lived and mild. However, further improvements are needed for housing prices to resume significant growth, such as a significant increase in housing affordability and loan repayments. For both buyers and sellers, carefully monitoring market trends and preparing for the long term remain key.
Chinese