Staying the Course: A Slow but Steady Market Shift
PRD's Australian Economic and Property Update for the 1st half of 2025. 2025 is shaping up to be an exciting year in residential real estate, with our first rate cut in February 2025 (and possibly more!), after waiting for more than 12 months (since its first whisper in early 2024). This brings the official cash rate to 4.10%, with many major banks passing on the savings and lowering their interest rates for many products, including investor lending and business borrowing.
Titled 'Staying the Course: A Slow but Steady Market Shift', PRD’s Australian Economic and Property Update for the 1st half of 2025 aptly portrays how different economic indicators, local and international events, and the dance between housing supply and demand have created the perfect storm for a steadier property market.
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PRD's Chief Economist, Dr Diaswati Mardiasmo says “a lower interest rate is welcomed by many, especially with household budgets straining under higher cost-of-living. There is some recovery in household savings and mortgage offset accounts, but this is minimal and not across all members of society”.
PRD Managing Director, Todd Hadley said “the first half of 2025 showed how fast things can change. Home buyers will have access to a slightly higher borrowing amount, which will assist with competing in an undersupplied market. History shows a ‘frenzy’ of real estate activity after a cash rate cut, which may spur a recovery in Melbourne and Sydney”.
At present, there are many moving pieces in both the global and domestic economy, with different countries choosing to do what is best for their people. “Federal Election 2025 does stall a lot of activity, due to uncertainty in the market – whether policies will hold or change. During this time, it is normal for many things, including the cash rate, to be held steady. This creates a multiplier effect on people’s spending habits and the property market.” Dr Mardiasmo said.
Key findings include:
- Buyers are back! The time-to-buy a dwelling index saw a significant improvement in January 2025, with all states in Australia reporting growth. The highest growth was in Victoria (43.0%) and South Australia (32.8%).
- Housing price growth moderated more than expected in the December quarter of 2024, especially in Melbourne and Sydney. BUT Brisbane, Perth and Adelaide; as well as some regional areas continue to see price growth.
- First home buyers’ activity declined by a -1.3% increase in the past 12 months to December quarter 2024, yet first home buyers must commit to a higher level of debt, an increase of 5.4% across Australia. Only New South Wales and Victoria’s first home buyer loans show savings.
- Housing finance commitments increased by 16.0% in the past 12 months to December 2024. Investor financing saw the highest level of growth, at 22.2%, which brings good news for renters.
- New residential construction grew in the past 6 months to Q4 2024, whilst the population slightly declined. Detached housing projects have picked up over 2024, which brings good news for buyers. New dwelling costs in Brisbane and Perth continue to rise, due to trade shortages and taxes.
- Units remain the dominant planned ready-to-sell stock in 2024 and 2025 (and beyond), in almost all capital cities (except for Hobart and Adelaide). Houses will remain undersupplied, pushing up prices for all stock types.
What’s in store for the rest of 2025?
“Our cash rate movements will depend on the inflation rate, and if it is within the 2-3% target rate. We now live in a world with high Global policy and economic uncertainty, impacting Australian industries. Consumers are still cautious but have improved sentiment. It has been “sticky”, but our real estate market should see more activity, especially if there are more cash rate cuts.” Dr Mardiasmo said.
“When it comes to housing demand vs supply, without a doubt, we still have issues similar to those in the past few years since COVID-19. These challenges will persist for the next few years, as we look for innovative solutions. The good news is housing and cost-of-living are key Federal Election 2025 issues. This event does create some uncertainty in the market, but it also brings opportunities.” Mr Hadley said.
