A 125 basis point drop in average mortgage rates wouldn't be enough to bring home purchase prices down to a level affordable for a median-income household, CoreLogic said in its annual Best of the Best Report, released on Thursday.
"We estimate that an affordable dwelling purchase for the median income household in Australia under the current average owner occupier rate (6.27%) would be around $507,000 – a far cry from the current median of $813,000," CoreLogic head of research Eliza Owen said.
Forecasts from the big four banks place the cash rate at between 3.1% and 3.6% by the end of 2025, down from its current 4.35%.
Assuming the cash rate drops to 3.1% and cuts are fully passed on to mortgage rates, CoreLogic projects an "affordable purchase price" for a median income household would rise to just $581,000.
NAB, ANZ, and Westpac expect the first rate cut to be handed down when the RBA board meets in May, while CBA has pencilled in a February cut.
"A change in the official cash rate target could then mark an inflection point, increasing demand in the second half of the year," Ms Owen said.
However, at least until February 18, the official cash rate will remain at its current 13-year peak, with the board having elected to deliver a widely expected hold on Tuesday.
The RBA's latest Statement of Monetary Policy (SMP) offered a base assumption that rates would be moving lower by mid-2025.
Until then, CoreLogic expects the current drag on buyer demand to persist.
"The market's initial strength in 2024 gradually waned due to declining demand, rising levels of advertised supply, and a shifting outlook for inflation and interest rates," Ms Owen said.
Rental growth slowdown to continue in 2025
The increasing cost of living is also expected to further restrain Australia's rental market.
The latest national rental index rose by a mere 0.2% in November, bringing the annual growth rate to 5.3% over the past 12 months.
This annual change in national rent prices is the smallest realised since April 2021, though it remains more than double the pre-pandemic decade average.
For comparison, rents rose at an annual rate of 8.1% in 2023, and by more than 9% over the two years prior.
"It will be interesting to see if the rate of rental growth rebounds through the seasonally strong first quarter of the year in 2025, but beyond any seasonality, it looks increasingly like the rental boom is over," CoreLogic research director Tim Lawless said.
However, Ms Owen noted that wage growth and Stage 3 Tax Cuts could add more money to household budgets, potentially boosting otherwise waning renting and homebuying capacity.
Australia's housing market remains resilient
Despite experiencing a slowdown in the latter part of 2024, Australia's housing market has grown throughout the year.
The Best of the Best report found the number of home sales rose 8% to 528,000 nationally in the 12 months to November.
This represents a 6% increase from the previous five-year average.
Over that same period, home values increased by 5.5%, pushing the combined value of all Australian homes past the $11 trillion mark.
However, market performance varied significantly.
"Beyond the market conditions, the key theme throughout the year was one of variability," Ms Owen noted.
While Perth experienced a 21% rise in home values, Melbourne recorded a 2.3% decline.
Regional markets exhibited similar diversity, with values falling by 2.7% in regional Victoria and rising by 15.5% in regional Western Australia.
A notable shift in performance was also evident across capital city markets.
Top performers Adelaide, Brisbane, and Perth showed distinct signs of a cyclical slowdown, with the quarterly pace of gains easing over the year.
Meanwhile, the quarterly value decline across weaker capital cities has shown marginal signs of easing toward the end of 2024.
"This could signal some stabilising of values in weaker markets through 2025, and a narrowing of the range in capital growth over the next 12 months," Ms Owen said.
Best-performing markets in 2024
| Houses | Units | |
|---|---|---|
| Most expensive suburb | Bellevue Hill (Sydney) | Point Piper (Sydney) |
| Most affordable suburb | Norseman (WA) | Laguna Quays (QLD) |
| Highest change in values | Beachlands (WA) | Dolphin Heads (QLD) |
| Lowest change in values | Venus Bay (VIC) | Sunshine (Melbourne) |
| Highest change in rents | Noosa Heads (QLD) | Geraldton (WA) |
| Highest gross rental yields | Collinsville (QLD) | Boulder (WA) |
Data source: CoreLogic Best of the Best Report, 2024
Two regional markets claimed the top spots for value increase nationally.
WA's Beachlands house market rose 38.4%, while Queensland's Dolphin Heads saw the highest value growth for units at 52.8%.
Across the capital city markets, Perth dominated the list to take out all 10 spots for the strongest growth in house values, with all suburbs delivering growth of 30% or more.
The most expensive sales of the year featured Sydney's usual eastern suburbs, including Point Piper, Bellevue Hill, Rose Bay, and Vaucluse.
Joining the east coast skewed list were Melbourne's Toorak and Queensland's Noosa Heads.
Nationally, Mosman in Sydney's Lower North Shore once again recorded the highest total value of house sales over the 12 months to November, at $1.65 billion.
Bellevue Hill ranked as the most expensive suburb for houses in the country with a median value of almost $10 million.
Houses in Noosa Heads saw the highest rent growth in the year at 23.7%.
On the other hand, Geraldton in WA topped the list for unit rent growth at 21.5%.
Image by Ikram Shaari on Pexels
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