The Nationwide Narrative
The Australian housing market has demonstrated an upward trajectory for 19 consecutive months, with national home values appreciating by 0.5% in August 2025. Nonetheless, this growth exhibits discernible signs of deceleration, as the quarterly escalation of 1.3% pales in comparison to the 2.7% surge witnessed during the corresponding three-month span of the preceding year.
Despite an overarching imbalance between housing demand and supply, the inflow of advertised properties and buyer interest are gradually achieving equilibrium. However, inventory levels fluctuate markedly across regions, with Melbourne grappling with a surplus of approximately 25% above the five-year average, while Perth and Adelaide confront a scarcity exceeding 40% below the norm.
The Tale of Two Cities: Diverse Dynamics
Capital city growth dynamics present a heterogeneous picture. Perth spearheaded monthly gains with a 2.0% upswing, trailed by robust increases of 1.4% in Adelaide and 1.1% in Brisbane. Sydney, on the other hand, witnessed a modest 0.3% monthly growth. Conversely, four capital cities experienced a decline, led by a 0.4% dip in Canberra, followed by 0.2% contractions in Melbourne and Darwin, and a mild 0.1% fall in Hobart.
Quarterly growth tapered off in most capital cities during the winter months. Brisbane, in particular, exhibited a pronounced slowdown, with its quarterly growth rate decelerating from 4.1% in May to 2.9% in August, signaling a waning demand in this increasingly unaffordable market.
The Affordability Conundrum
According to Eliza Owen, CoreLogic’s Head of Research, while seasonality may have contributed to the subdued value growth during winter, affordability constraints remain a pivotal factor underpinning the broader deceleration. She notes that the high levels of growth witnessed in Perth, Adelaide, and Brisbane would be arduous to sustain, given the escalating strain on affordability, compounded by elevated home loan interest rates, loosening labour market conditions, and cost-of-living pressures.
The Divergence of Demand
The ongoing outperformance of ‘cheaper’ markets underscores the strain on demand. The lower quartile of the combined capital city market, encompassing the most affordable 25% of dwellings, rose by 2.7% in the three months leading to August, contrasted with a mere 0.3% uplift across the upper quartile.
Corroborating this trend, the quarterly change in unit values surpassed that of houses in five of the eight capital cities. At a granular level, growth trends have been most pronounced in relatively affordable pockets like Canterbury in Sydney (up 13.3% in the past year), Kwinana in Perth (up 31.4%), and the Springwood – Kingston market in Brisbane (up 25.5%). This suggests that a more significant portion of the buyer pool may be skewed towards the lower-priced segment, bolstering values at the more affordable end of the pricing spectrum.
The Shift in Median Dynamics
In a noteworthy development, the median dwelling value in Melbourne has been surpassed by Adelaide and Perth, rendering Melbourne’s median the third-lowest among the capital city markets. Adelaide’s median now stands at $790,800, Perth’s at $785,250, while Melbourne trails at $776,044. August witnessed Adelaide and Perth experiencing increases in their median dwelling values of $13,600 and $15,300, respectively, juxtaposed with a $3,100 decline in Melbourne’s median.
Remarkably, this marks the first instance since February 2015 that Perth’s median dwelling value has exceeded Melbourne’s, a period coinciding with the city’s recovery from the highs of an iron-ore boom. Moreover, it is the inaugural occurrence in CoreLogic’s four-decade median dwelling value series that Adelaide has surpassed Melbourne.
It is worth noting that the median dwelling value is heavily influenced by the proportion of units in each market. Melbourne’s median is weighted down by the composition of housing in the city, where approximately a third of homes are units, compared to about 16% in Perth and Adelaide. However, the median house and unit values across Perth and Adelaide remain lower than those in Melbourne.
Melbourne’s Market Dynamics
Melbourne home values have now declined for six consecutive months. Ms. Owen acknowledges that a wide range of factors, including the increased tax burden on investment property owners in Victoria and the consequent decline in the number of investment loans secured in the state, as reported by the ABS, may be dissuading some demand. However, she emphasizes that these are not the sole contributors to Melbourne’s softer market conditions.
Hobart and Canberra dwelling values are also in decline, with interstate migration trends having been weak across Victoria, Tasmania, and the ACT in recent years. These markets also experienced a more robust run-up in price growth throughout the 2010s, making it more challenging to sustain demand while interest rates remain elevated.
Supply is also a significant factor for Victoria, where the state witnessed more dwelling completions over the past decade than any other state or territory. The ACT, too, experienced a spike in unit completions from 2019 to 2023, exerting downward pressure on the overall dwelling market.
Relief for Renters on the Horizon
Renters can anticipate some respite as rent growth decelerates to a halt. The national CoreLogic hedonic rent index remained unchanged for a second consecutive month in August, and rent values declined in Sydney for a second consecutive month.
While monthly results are subject to seasonality, the annual growth trend also exhibits a consistent slowdown in rent rises. Nationally, rent values were up 7.2% in the year to August, the lowest annual growth rate since May 2021. Annual rent growth is now slowing in every capital city market, except for Hobart, which is recovering from a dip in rent values through 2023.
Ms. Owen attributes the slowdown in rent growth to a combination of supply and demand factors. On the demand side, net overseas migration has dropped, with ABS data showing a decline from 165,000 in the March quarter of 2023 to 107,000 in the December quarter, and overseas arrivals data suggesting a fall in international student arrivals.
Additionally, the latest RBA reporting on average household size showed a slight uptick, suggesting that share housing or multi-generational family homes may be on the rise in response to high rents.
On the supply side, investor trends vary state-to-state, but nationally, investor loans secured were up 10.7% in the year to June. Dwelling completions remain an issue, with a strained construction sector keeping a floor under both rent and purchase prices.
Shifting Yield Dynamics
Rent yield dynamics are also evolving, potentially shaping future investor activity. For the first time in the history of the CoreLogic gross rent yield series, Brisbane and Adelaide rent yields are on par with Melbourne, at 3.7%. Gross rent yields in Perth are also showing a substantial decline, from a recent high of 4.8% in June 2023 to 4.3% in August.
“Yield compression is common when values are rising strongly, which may slow investor interest in high-growth cities. However, many investors are attracted to long-term prospects for capital growth over high rent returns,” Ms. Owen remarks.
The Road Ahead: Modest Growth Anticipated
Looking forward, the national housing market should continue to see modest value increases until the end of 2024. While growth is undeniably slowing, housing values are underpinned by a longer-term lack of new supply, exacerbated recently by ongoing constraints in the residential construction sector. The latest Statement on Monetary Policy from the RBA highlighted that finishing trades are in short supply, and the public infrastructure pipeline is creating greater competition for labour, especially in the multi-unit sector.
Buyer numbers have slowed amid high cost of living pressures, but vendors in most markets will likely be empowered to delay their home sale if buyers do not meet their price expectations.
Tight job markets continue to support mortgage servicing; however, a more substantial loosening than expected in the labour market poses a key risk for housing values.
Tax Cuts and Energy Rebates: A Potential Boost?
Tax cuts and energy rebates are improving household finances but may not necessarily translate to a boost in home buying. The Westpac-MI consumer sentiment index rose 2.8% in August, buoyed by improved sentiment around household finances as stage three tax cuts kicked in, and the cash rate remained on hold for a sixth consecutive meeting. However, sentiment around dwelling purchases continued to decline.
“There is such a wide gap between an affordable home for the median income household in Australia and actual dwelling values that the impact of tax cuts is unlikely to substantially increase the number of buyers,” Ms. Owen cautions.
CoreLogic estimates an affordable purchase price at about $500,000 for the median income household, against a median dwelling value of $802,000. This discrepancy has likely narrowed the buyer pool to wealthier and higher-income buyers.
Spring Sellers: A Cautionary Tale
Heading into the spring selling season, there is no guarantee that buyer numbers will rise to meet the seasonal uplift in listings. While total stock levels are generally low across the country, some markets, primarily across Victoria and Tasmania, are experiencing an accrual of total listings despite soft price performance.
In such a varied market, those looking to sell this spring should be conscious of local conditions, such as the number of properties currently on the market, the amount of time properties are taking to sell, auction clearance rates, and price movements, before listing.
The Affordability Benchmark
For a household earning $100,000 per year, an affordable purchase price would be $506,000 (assuming 30% of income on a mortgage with a 20% deposit and an average owner-occupier mortgage rate of 6.28%).
Wrapping Up: A Multifaceted Landscape
The Australian housing market presents a multifaceted landscape, with diverse dynamics across regions and price points. While growth persists, the pace has moderated, reflecting affordability constraints and shifting demand patterns. As we navigate this intricate terrain, astute buyers and sellers would do well to remain attuned to local market conditions, leveraging insights from authoritative sources to inform their decisions. In this ever-evolving landscape, adaptability and strategic foresight will be key to capitalizing on emerging opportunities.
Resources;
Owen, E. (2024, September). Growth cools in Australian housing values through winter as Melbourne median slips below Perth and Adelaide. CoreLogic Australia. https://www.corelogic.com.au/news-research/news/2024/growth-cools-in-australian-housing-values-through-winter-as-melbourne-median-slips-below-perth-and-adelaide
CoreLogic house price data shows home values still rising but growth is slowing – ABC News. (2024, September 1). ABC News. https://www.abc.net.au/news/2024-09-02/house-price-data-shows-values-rising-more-slowly/104291298
