Perth, Adelaide and Brisbane are predicted to experience the biggest property price rises in 2025 when chronic housing undersupply, burgeoning population growth and expected interest rate cuts combine to worsen affordability.
Despite already exorbitant prices, record migration levels continue to drive demand and push prices up across the country, Domain forecasts in its 2024 end-of-year-wrap, released on Thursday.
The dominant duo of Sydney and Melbourne are expected to experience lower price growth than the ‘quiet achievers’, as buyers flock to smaller cities where values are coming off a lower base, said Domain chief of research and economics Nicola Powell.
‘You do tend to see stronger growth coming out of those bigger capitals … but what we’ve seen over 2024 it has been Perth, Adelaide and Brisbane that have been the stand-out performers and that trend is not expected to change over 2025,’ Dr Powell told AAP.
Lower supply and tighter rental markets were contributing to faster growth in smaller cities, with houses predicted to rise between five to seven per cent in Brisbane, seven to nine per cent in Adelaide and eight to 10 per cent in Perth, compared to growth of four to six per cent nationally.
That price growth may be good news for homeowners and bad news for those trying to enter the market, but it is markedly slower than in 2024, with house prices in Perth, for example, rising by more than 20 per cent over the past 12 months.
Despite the Reserve Bank of Australia keeping interest rates higher for longer than expected, and unaffordability locking many buyers out, the market displayed ‘remarkable endurance’.
‘That resilience was really on show over 2024,’ Dr Powell said.
Property prices are forecast to continue rising in a number of capital cities
‘We’re caught between high interest rates and an undersupply of housing … and that undersupply isn’t going to be fixed by 2025.’
Dr Powell expects 2025 to be a year of two halves, with softer spring sales set to continue into autumn before interest rate cuts expected mid-year triggers a spike in demand and stronger price growth in the second half.
Melbourne is predicted to be one of the slowest-growing capital cities, with house prices forecast to grow between three to five per cent and unit prices expected to deflate slightly.
That reflects investors withdrawing from Victoria after the state government introduced taxes on investment properties or holiday homes.
First homebuyers were making up a larger share of purchases, as the government intended, Dr Powell said.
Experts are tipping the housing market in Melbourne to lag behind some other capital cities.
But the consequent lack of investment property purchases reduces the amount of available rental homes, pushing those prices up steeply.
‘At the core of this needs to be supply and focusing on building more homes and achieving that 1.2 million homes (National Housing Accord target).’
Growth in rental prices is slowing, with capital city rents rising at 5.3 per cent over the 12 months to November – the slowest annual change since April 2021 – according to CoreLogic.
That reflects softer demand for rentals, as strained affordability forces renters to form more share houses or live with their parents for longer, said CoreLogic economist Kaytlin Ezzy.
‘This is reinforced by RBA reporting on average household size, which has been rising across the capital cities,’ she said.
‘Rental growth may rebound a little through the seasonally strong first quarter of 2025, but beyond any seasonality, it looks increasingly like the rental boom is over.’
