Australia House Prices Decline: Why Are Experts Predicting A Temporary Slowdown?

Experts predict that Australian home prices will decline moderately and temporarily in the first half of 2025, following years of rising prices, even though a major crash was not expected.

Recent data from CoreLogic and PropTrack show a slight drop in Australian home values in December, marking the first monthly decline in nearly two years.

CoreLogic's hedonic index showed a 0.1% decline, while PropTrack recorded a 0.17% fall.

Despite the drop, experts believe the downturn will be short-lived.

Why are home prices falling?

AMP Chief Economist Shane Oliver attributed the slowdown in the housing boom to high prices and limited housing supply. He pointed out that the cost of housing had become a barrier for many potential buyers, with many unable to afford current prices, ABC reports.

"There are numerous signs of softening in the Australian property market," he pointed out.

According to Oliver, key indicators of decline are:

• Auction clearance rates have fallen, particularly in Sydney, where they are now just above 50%.
• New listings are increasing across cities, signaling more distressed sales due to high mortgage rates.
• Unit and lower quartile prices are seeing growth as buyers gravitate toward more affordable options.
• Properties are staying on the market longer, and overall sales activity is slowing.

Eliza Owen, the head of Research at CoreLogic, explained that the current price drop was part of a cyclical process, and predicted it will continue for several months. Factors such as affordability -- especially in expensive markets like Sydney -- and an increase in sellers were contributing to the decline.

Owen highlighted that many households, even those with a 20% deposit, were now borrowing more than AU$300,000 less than the median home price. This affordability gap was likely to force the market to adjust, she added.

PropTrack's senior economist, Anne Flaherty, noted that the rise in sellers was also playing a key role in driving down prices. She added that the delay in rate cuts, which were originally expected to begin in 2024, was a major contributing factor leading to price drop.

"As lower interest rates have not materialized, housing demand from these buyers may also be waning," Flaherty says. "In particular, interest rate cuts that were originally anticipated prior to 2025 have now been pushed back."

Westpac senior economist Matthew Hassan said that analysis of key markets, which often lead broader trends, suggested further price drops, particularly in Melbourne and Sydney.

Moderate drop expected in early 2025

Most analysts agree that the decline in property prices will be moderate and concentrated in the first half of 2025.

However, Oliver believes that the ongoing shortage of homes (estimated at 200,000 dwellings) will prevent prices from falling too much. As interest rates begin to fall, modest price increases are expected.

"The chronic housing shortage got the upper hand over high interest rates in 2023 as immigration levels surged and buyers feared that they would miss out," he said.

Hassan shared a similar outlook, predicting a mixed first half of the year but a modest recovery in the second half of 2025. He forecasted a 3% rise in property values by the end of 2025, with growth reaching 7% by 2026.

While experts like Owen believe the decline will be brief, Oliver cautions that future price growth will be constrained due to poor affordability and high mortgage rates.

With rates remaining above pre-COVID-19 levels, price increases in the near future are likely to be limited, according to Oliver.