The start of 2024 was marked by robust housing demand in Australia.
Following a short, sharp fall in values through 2023, and buoyed by forecasts for a reduction in the cash rate through 2024, the first quarter of the year was marked by high rates of monthly value increase (averaging 0.8%), and higher-than-average sales numbers.
Sales and housing values kept climbing
CoreLogic estimates that through the year to date, home sales have totalled around 394,000 nationally, up 10.4% from the same period in 2023, and 9.3% from the previous five-year average. The biggest increase in home sales annually was in Western Australia, the market which is leading capital growth trends. In Perth, home sales were up 26.8% in the year to October, and 34.7% in regional WA. Nationally, home values have increased 5.2% over the year-to-date, and the combined value of Australian homes surpassed $11 trillion.
Buyer challenges
However, as the year comes to a close, the Australian housing market is now seeing a slight drag on demand, with several factors weighing on the number of buyers in the market. Even with inflation steadily declining, cost of living pressures persist, and the household saving rate has reduced from a decade average of 7.5% to just 0.6% in the June 2024 quarter. While households may be saving less because of high housing values, growth in non-discretionary goods and services prices over the year to September may also be making it harder for first home buyers to save for a deposit or upfront transaction costs. Housing affordability continued to deteriorate in September 2024, with the latest report from ANZ and CoreLogic showing the median dwelling value has climbed to 8 times the median household income. This is up from 7.6 a year ago and matched a series high from early 2022.
A relatively high cash rate setting may also hinder new housing demand. While overall housing credit growth has been surprisingly resilient in 2024, ABS lending data suggests new housing credit softened a little in September, and the RBA recently noted housing credit has declined as a share of disposable income. Through the rate-hiking cycle, it is possible prospective buyers have used higher deposits to partially offset higher interest costs, and may also have targeted lower-value housing markets to minimise housing debt. However, the wealthy, high deposit buyer pool may thin out the longer the cash rate sits at 4.35%, and low-value markets may lose their appeal as demand pushes previously affordable markets higher. Expectations for a cash rate reduction has also blown out over the course of year, with bank economist expectations of the first rate cut now broadly at mid-2025.
Supply increased amid slower demand
In the three months to October, CoreLogic has observed around 138,000 new ‘for sale’ listings nationally, the highest level for this time of year since 2018. It is difficult to say why vendor activity has increased in 2024, but it may partly reflect a catch up from the relatively low vendor activity through the uncertainty of the pandemic and rising interest rates and there may also be some home owners that need to sell as household balance sheets are squeezed.
Between softer demand and higher supply, the Australian housing market on aggregate appears to be on the side of buyers. The combined capital cities clearance rate averaged 57.9% in the four weeks to November 17, slipping from an average of 64.1% through the year-to-date. Properties are taking slightly longer to sell than this time last year, with the median selling time nationally up to 33 days, from 27 days a year ago. Based on recent monthly growth trends, it is possible the year will end with five of the eight capital cities in value decline (Melbourne, Sydney, Hobart, Darwin and Canberra).
Even in cities where values are still rising strongly, there is some sign of a slowdown as affordability constraints spread. Brisbane home values rose 2.4% in the three months to October, down from 4.4% in the same period of 2023. In Perth, three-month value growth was a remarkable 4.1%, but even this is down from a recent high of 6.3% in the June quarter.
Will 2025 be a better year for real estate?
The start of 2025 may see a continuation of the drag on buyer demand exhibited towards the end of this year, but several indicators also suggest an improvement in household finances which could support more housing purchases and a recovery in growth conditions.
Wages growth, while slowing, is well above the pre-COVID, decade average, at 3.5% in the year to September. Real household income has been boosted by the Stage 3 tax cuts, and is expected to pick up as inflation continues to ease in 2025. Reporting by Westpac and the Melbourne Institute suggests consumer sentiment is rising, and attitudes around whether it is a good time to buy a dwelling have improved in recent months. The ‘Time to Buy a Dwelling’ sub-index within the consumer sentiment report surged 11.3% in the month of November, and was particularly strong in Victoria where housing affordability has been improving.
While market conditions are broadly expected to improve in 2025, there will still be considerable diversity in housing market performance. For example, Melbourne and Hobart may see a subtle rise in value off the back increased affordability, while the demand shock that has created strong price growth in the likes of Perth and Adelaide may start to ease.
The all important official cash rate target will be another key factor influencing housing demand in 2025. However, it is worth keeping in mind that most expectations are for a ‘shallow’ rate cutting path, with the big four economic houses placing the cash rate between 3.1% and 3.6% by the end of 2025. As of November, the RBA has a base assumption of mid-2025 for the first rate reduction, along with NAB and Westpac. CBA and ANZ have pencilled in February for the first rate cut. While any reduction in the cash rate is likely to increase demand for housing, the Council of Financial Regulators will be monitoring credit growth carefully in 2025.
Meet Eliza Owen
Head of Residential Research Australia
Eliza Owen was appointed the Head of Research at CoreLogic Australia in 2020.
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