Aussie home prices to climb 5% yearly until 2025 – poll

This despite potential interest rate hikes

Aussie home prices to climb 5% yearly until 2025 – poll


By Mina Martin

Property analysts remain optimistic about the Australian housing market, forecasting a 5% increase in home prices for 2024, according to a recent Reuters poll.

The projection comes despite the Reserve Bank’s hints at possible interest rate hikes by year-end, following a significant 25% price surge during the pandemic and a subsequent 9% fall from peak values.

The housing market’s rebound has been notable, with prices nearly recovering from last year’s dip despite the central bank raising the cash rate to a 12-year high of 4.35%. However, this growth has exacerbated affordability issues, particularly for first-time buyers, amid low unemployment, high wage growth, and increased immigration.

Home prices have nearly doubled since the 2008 financial crisis.

Outlook for 2024 and beyond

The median forecast from a Reuters survey conducted between Feb. 16-28, involving 14 property analysts, suggested average home prices will rise by 5% this year, consistent with predictions from a December poll. The forecast for 2025 also anticipated a 5% increase, up from the 3.9% projected in the previous survey.

“The housing market in Australia seems to be cooling,” Adelaide Timbrell (pictured above), ANZ senior economist, told Reuters. “There was a very strong year in 2023 with 9.1% price growth in capital cities, but we don’t expect that to be repeated. The interest rate staying at 4.35% for most of the year... will put a limit on housing price growth in 2024.

“Housing prices will still grow because people will have more borrowing capacity through the year due to tax cuts and rate cuts. And there’s still strong population growth and a backlog of building homes that needs to be filled.”

Starting July 1, a new amendment mandates higher taxes for high-income earners and reduces taxes for low-income households grappling with the escalating cost of living.

The combination of historically low interest rates during the pandemic and limited housing supply has driven up housing prices, pushing many potential first-time buyers into renting instead.

Affordability and homeownership trends

The affordability crisis is set to deepen, with six of 10 analysts foreseeing worse conditions for first-time home buyers over the next year, while the remaining four predicted an improvement in affordability.

“Housing has increasingly become a luxury good, with household affordability around record low levels. This will put a downward force on homeownership rates,” Johnathan McMenamin, Barrenjoey senior economist, told Reuters.

“Prior to the pandemic, you had a situation where you still had to earn more than the median income to enter the housing market. But now it’s shifted further up that income distribution. The pool of potential buyers has narrowed in the current cycle and that narrowing will likely lead the pool of rentals increasing as well.”

Out of eight respondents, five predicted that the ratio of homeowners to renters will decline in the next year, whereas three foresee an increase.

Demand and supply gap

Analysts predicting a widening gap between the demand and supply of affordable homes in the next two to three years outnumbered those anticipating it would remain the same or narrow slightly by a two-to-one margin.

“Every time housing prices go up more than wages and salaries, the share of homes that are affordable goes down,” Timbrell said. “And we will continue to see that unless there is a huge increase in social housing.”

Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.

Keep up with the latest news and events

Join our mailing list, it’s free!