The Commonwealth Bank is predicting house prices will fall in early 2025 even as interest rates are cut, before rebounding later in the year.
House prices last month fell in Sydney, Melbourne, Canberra and Hobart, with capital city values having no growth for three straight months, CoreLogic data showed.
Gareth Aird, the Commonwealth Bank’s head of Australian economics, is expecting house prices to fall in the first half of 2025, even though he is predicting the Reserve Bank of Australia will cut rates in February.
‘It is not unusual to see some fatigue creep into the national housing market given affordability remains stretched on most conventional metrics,’ he said.
‘We don’t expect property prices in Sydney and Melbourne to suddenly shift higher as rates are cut given there is a lot more advertised stock on the market compared to a year ago.
‘Advertised stock levels sit well above the five-year average for this time of the year in Sydney and Melbourne.’
The Commonwealth Bank is expecting the Reserve Bank of Australia to cut interest rates in February, which would mark the first easing since November 2020.
But CBA is also expecting four cuts overall in 2025, that would see house prices fall in the first half of this year, before soaring in the second half, for an overall annual increase of four per cent.
The Commonwealth Bank is predicting Australian house prices will fall in early 2025 even as interest rates are cut
‘Prices are likely to continue to edge lower in the first half of 2025, before lifting over the second half of the year as borrowing capacity increases due to lower mortgage rates,’ Mr Aird said.
Australia is a two-speed housing market with prices falling in Sydney, Melbourne, Hobart and Canberra in January, but still increasing in Brisbane, Adelaide, Perth and Darwin.
CoreLogic’s research director Tim Lawless said any national downturn was likely to be short-lived.
‘Lower mortgage rates and a subsequent lift in borrowing capacity as well as an under supply of newly built housing could be setting the foundations for a relatively shallow housing downturn,’ he said.
But house prices were unlikely to soar like they did in 2023 and early 2024, as immigration slowed from record-high levels above 500,000 a year.
‘The easing cycle for interest rates is likely to be a gradual one, and we also have the ongoing headwinds of affordability constraints, normalising population growth and generally soft economic conditions to contend with,’ he said.
‘All things considered, the likelihood of a significant growth cycle over the coming year remains low.’
Sydney’s median house price fell by 0.4 per cent last month to $1.474million.
Gareth Aird, the Commonwealth Bank’s head of Australian economics, is expecting house prices to fall in the first half of 2025, even though he is expecting the Reserve Bank of Australia to cut rates in February (pictured are houses in Brisbane)
In Melbourne, they fell by 0.5 per cent to $917,132 with house prices 3.5 per cent weaker compared with a year ago as a result of the Victorian government’s $975 investor tax.
Hobart prices dropped by 0.2 per cent to $698,345 as Canberra values fell 0.4 per cent to $968,907.
But they were still going up in Brisbane, where interstate migration is still strong.
The Queensland capital’s mid-point house price went up by 0.3 per cent in January to $977,343, making it Australia’s second most expensive market after Sydney.
Adelaide had the biggest monthly increase of 0.7 per cent to $872,553 as Perth prices edged up 0.3 per cent to $843,805.
Darwin, Australia’s cheapest capital city housing market, had a 0.6 per cent increase to $582,971.
Capital city prices overall last month fell by 0.2 per cent to $1.01million but regional prices rose by 0.4 per cent to $670,346, which is attainable for someone earning a slightly above-average salary of $103,000.
Mr Lawless said more affordable regional markets were benefiting from work-from-home arrangements.
‘Regional markets seem to be benefitting from a second wind of internal migration, along with an affordability advantage in some markets, and what looks to be some permanency in hybrid working arrangements across some occupations and industries,’ he said.
