2024 End of Year Wrap Overview

Inflation’s Bumpy Decline

In 2024, Australia’s economy continued to grapple with relentless inflationary pressures that had stubbornly lingered from the previous year. Rising living costs weighed heavily on households, straining family budgets and stirring concern across the nation. The RBA faced the daunting task of finding the delicate balance between curbing inflation and maintaining steady economic growth. It was a high-stakes balancing act – taming without further shaking consumer confidence, triggering a spike in unemployment, or pushing the economy into recession.

Early in 2024 there was notable shift in the interest rate outlook, with markets pricing in multiple rate cuts (figure 1). Just a few months prior, in late 2023, the opposite – further rate hikes were anticipated. Buoyed by this more optimistic outlook, Australians adjusted their purchasing decisions.

As the months progressed, this outlook changed. Inflation was proving stubborn –remaining too high and not cooling as quickly as anticipated. Persistent services inflation, lingering supply-chain issues and steep energy costs kept the pressure on. The jobs market remained remarkably robust, with low unemployment and rising wages fuelling consumer spending, which contributed to inflationary pressures. As a result, further rate hikes became a probability to rein in inflation, despite earlier expectations of cuts (figure 1).

By mid-year, signs of progress emerged. Government electricity rebates and falling petrol prices helped offset other costs pressures, but core inflation stayed sticky. Australia's inflation journey has been marked by significant fluctuations, reflecting a complex interplay of domestic and global factors. The changeable economic landscape and speculation on cash-rate movements weighed on affordability and sentiment – critical factors influencing property purchases.

Australia held its breath for interest rate cuts

Throughout much of 2024, there was persistent speculation that interest rates would be cut, but those cuts never materialised. As the year progressed, the anticipated timing of the first rate reduction kept being postponed. In hindsight, we see that the cash rate remained stable throughout the entire year – the longest period of such stability since 2021–22 – although it didn’t feel this way at the time. The uncertainty altered Australians’ plans to buy and sell

property, and this behavioural response had a powerful influence on market dynamics.

Australians are ending the year feeling more secure; it is reassuring that inflation has moderated significantly, providing a sense of relief that the cost of living will not continue to spike at the furious rates previously experienced. The cash rate is stable, and there are strong expectations that it will eventually decrease. Now, the consensus is clear: do not expect any cuts until 2025.

Economic headwinds no match for property prices

Despite significant challenges, the property market remained remarkably buoyant. This resilience stems from a complex mix of factors that kept demand strong and supply tight.

Chronic undersupply of housing - exacerbated by years of underinvestment in housing and restrictive zoning laws - kept the market constrained. At the same time, strong population growth added pressure on the demand side. High construction costs and labour challenges make new projects more expensive to undertake and unfeasible to deliver. Together these factors created a market in which demand consistently outpaced supply, supporting property prices despite broader economic headwinds.

Quiet achievers now Australia’s top property performers

Traditionally overshadowed by the dynamic markets of Sydney and Melbourne, Australia’s smaller cities stepped into the spotlight in 2024. Perth, Adelaide, and Brisbane emerged as standout performers, exhibiting significant momentum in their property markets.

Factors such as more affordable housing prices, robust local economies, and increased interstate migration contributed to their rise. This shift not only diversified the national property landscape but also highlighted changing buyer preferences, including the appeal of lifestyle changes and remote work opportunities that smaller cities offer.

Australia remains caught between an extreme housing shortage and high interest rates. The dominating undersupply in the market is driving price growth, pushing home prices ever higher. However, this has widened the gap between property prices and buyers’ capacity to pay, intensifying affordability challenges and pushing demand to lower-priced locations and homes. Anecdotal evidence points to cautious buyers still delaying property purchases until interest rate cuts.

As buyers hold for long-awaited rate cuts, the number of homes for sale has risen to roughly a four-year high nationally 2, with only Adelaide, Brisbane and Perth remaining well below historical averages. The upside for buyers is easing price growth, softer clearance rates and longer days on market for sellers. Negotiations on price have become more frequent, signalling a shift in the balance of power between buyers and sellers.

National Snapshot

Most Wanted Property Type

Most In Demand Area by City

Suburbs with the Quickest Sales by City

Australia’s Top Keyword Searches

Searches for “study” have dropped to seventh place this year from second in 2023, suggesting a shift in wok-from-home trends as more workers return to the office.

Despite ongoing affordability challenges, home luxuries remain a priority for buyers. "Pool" retains the top spot, and "view" climbed to third place, overtaking "study". "Water view has surged into eight place from outside the top 20 in 2023.

Prime real estate continues to dominate buyer interest. "Waterfront" has risen in second place (up from fifth in 2023) and "beach" has moved up to sixth place (from eleventh), emphasising the appeal of coastal living.

“Granny flat” remains a highly sought-after feature, holding steady at fourth place, reflecting tight rental markets and a growing interest in side incomes, additional workspaces, or multigenerational living.

Architectural styles are also gaining traction. “Art deco” debuts in the top 20 at 12th place, while “brick” has risen from 20th to 17th, indicating a renewed appreciation for classic architectural features.

State by State Breakdown

Victoria | New South Wales | Queensland | South Australia | Western Australia

2025 Outlook

Upwards Price Drivers

Housing Shortfall

With building approvals at decade-low levels in 2024, significant threats loom over the government’s ambitious plans to tackle the worsening housing crisis. A shortage of new housing construction – hampered by high costs and labour shortages – will continue to limit

supply and drive up prices. Major barriers to starting new housing projects include high construction costs, delays in obtaining planning permits, labour availability, and high interest rates, which remain an issue. This undersupply is exacerbated by population growth, intensifying demand, and low vacancy rates.

Easing Financial Conditions

2025 is expected to bring a rate-cutting cycle. This will make borrowing more affordable, boost buyer activity and drive up prices. If APRA reduces the mortgage serviceability buffer from 3%, borrowing capacity will increase further. Together, these changes could accelerate access to the property market, increase demand, and exert upward pressure on housing prices. The prospect of a cash-rate cut in late 2024, combined with a reduced serviceability buffer, likely signals a significant shift in property prices.

FOMO Makes a Comeback

Lingering pessimistic consumer confidence – a recurring theme in recent years – may persist until there’s more clarity around the economy and a cash rate reduction. Even a slight decrease in borrowing costs could reignite buyer confidence, prompting many to act quickly before prices rise further. Heightened buyer activity may bring back FOMO as buyers anticipate increased competition and higher prices. This urgency is amplified in areas with constrained housing where buyers seek to secure purchases as financing becomes more attainable. Such behavioural shifts could bolster demand and contribute to upward

price pressure.

Downwards Price Drivers

Economic uncertainties

Uncertainty, driven by global and domestic challenges, could weigh heavily on Australia’s property market in 2025. Concerns of geopolitical tension and the potential for a global recession may dampen buyer confidence, causing many to delay significant financial commitments such as purchasing a property. Domestically, subdued business investment and reduced consumer spending could create a more cautious economic environment, further reducing demand for housing. This hesitancy may particularly affect the high-end of the market, where buyers are more sensitive to market volatility

Stretched Affordability

High property prices will continue to challenge affordability in 2025. Wage growth has lagged behind home prices for some time, and higher interest rates have hit borrowing capacity. The combination of escalating home values and the rising cost of credit has left many buyers unable to enter the market, especially in sought-after urban areas. This is expected to slow

demand, exerting downward pressure on prices unless there is a significant rise in incomes or a reduction in mortgage rates. However, many buyers may adapt by opting for townhouses and apartments or relocating to more affordable suburbs to achieve their homeownership

goals.

High Interest Rates

The cash rate could remain high well into 2025. Unlike central banks in the US, Canada, and the UK – which have begun easing monetary policy – the RBA is cautiously monitoring domestic conditions before making adjustments. Forecasts for a rate cut have continuously been pushed back due to persistent inflationary pressure and a robust jobs market.

Despite other countries reducing rates, Australia is not expected to see a drop until mid-2025 or later, meaning that downward pressure on prices could remain for part or even most of the year.

2025 Trends to Watch

Cash rate cuts will shape 2025

With stretched affordability and limited borrowing power, buyers’ ability to secure a home is capped. However, 2025 could see pivotal changes that reshape this dynamic. An interest rate cut or targeted stimulus measures could trigger a wave of demand and spark price growth as the housing market responds to this newfound momentum. It may take one or two rate

cuts to motivate buyers into action, and the timing of these cuts will shape market dynamics in 2025, perhaps creating a year of two halves, with a weaker first half and a stronger second. Alternatively, easing the mortgage serviceability buffer would unlock greater borrowing power for many, speeding up market access and lowering the cost of debt.

Housing: key battleground in the 2025 federal election

Australia’s persistent lack of affordable housing and supply issues remain in the spotlight, increasingly becoming a key battleground for the 2025 federal election. A change in government could bring targeted measures such as first-home buyer incentives, reforms to negative gearing and capital gains tax, replacing stamp duty with a land tax, support for affordable housing projects, and initiatives to stimulate construction activity. These policies will influence demand, buyer segments, prices and market confidence in various ways. The main priority should be a substantial increase in housing construction, with a focus on reducing red tape, speeding up planning permits and boosting the construction workforce.

Implementing bold policies requires political stamina and vision.

Embracing density

Australia’s cities are among the least dense globally, but as populations swell in Sydney, Melbourne, and Brisbane, efficient use of land and housing is essential to build the

cities of tomorrow. Urban housing is evolving to address affordability concerns – a trend that will become more apparent in 2025. Expect an increase in townhouses and smaller apartment buildings, particularly in middle-ring suburbs, as planning regulations promote diverse options for downsizers and young families. Economic and cultural shifts are leading more families to live under one roof, increasing demand for homes that accommodate multiple generations. Co-living arrangements are gaining popularity among younger demographics, offering shared spaces with private bedrooms to foster community and lower living costs.

Green is not going away

With rising energy costs and an increasing ecoconscious mindset, Australians will prioritise homes that cut costs and carbon footprints. Solar panels, energy-efficient appliances, and top-tier insulation are now must-haves for savvy buyers. Governments are offering subsidies for sustainable features like solar power, efficient heating, and water-saving systems,

and there is continued momentum to mandate energy ratings on homes for sale. As energy prices fluctuate, more people are seeking homes that promote energy self-sufficiency with solar power, battery storage, and rainwater harvesting. And the payoff? Sustainable

homes fetch a price premium upon resale as they are seen as durable, cost-efficient, and future-proof investments for the long haul. Green is not just smart; it’s profitable!

Source: Domain End of Year Wrap - 2024

This article is intended for informational purposes only and does not constitute legal, tax, or financial advice. Always seek professional counsel tailored to your specific situation. Remember, all loan applications are subject to the lender’s approval and conditions, including fees and charges.