National average home prices rose 4.9 per cent in 2024, CoreLogic has reported, adding approximately $38,000 to the median value of a home.
Notably, the pace of gains remained diverse. Three capital cities recorded a decline in values over the year, with Melbourne down 3 per cent, Hobart 0.6 per cent, and the ACT down 0.4 per cent.
At the other end of the spectrum, Perth values surged 19.1 per cent higher over the year, while Adelaide and Brisbane values were up 13.1 per cent and 11.2 per cent, respectively.
However, momentum continued to weaken across the country, with average prices falling 0.1 per cent in December – its first fall since January 2023.
Commenting on the findings, AMP’s Shane Oliver noted that price growth began to hit a wall by mid-2024.
“What’s more, recent month’s gains are being revised down by CoreLogic, suggesting that December’s 0.1 per cent fall could be revised down too,” Oliver said.
Even for booming cities like Perth, Adelaide and Brisbane, which are all now more expensive than Melbourne by median price, it is clear these markets have passed their peak rate of growth, the economist noted.
“The big negative influences on the property market of poor affordability and high mortgage stress on the back of high prices, high debt levels and ongoing high mortgage rates have reasserted themselves in the last six months,” Oliver said.
“The further rise in average home prices last year means that the ratio of average prices to incomes is at or around record levels.”
However, the economist believes that the country’s housing shortage remains a source of support for property prices.
“The accumulated housing shortfall is estimated to be around 200,000 dwellings at least and is expected to rise further this financial year as underlying demand remains in excess in housing completions,” he said.
Even so, Oliver reiterated that record price-to-income ratios, combined with the surge in mortgage rates, means there is a worrisome divergence between buyers’ capacity to pay for a property and current home prices.
“In the absence of rapid interest rate cuts, this divergence between buyers’ capacity to pay and current prices continues to point to a high risk of much lower average property prices at some point as saving buffers run out, access to ‘the bank of mum and dad’ slows and unemployment rises.”
Expect further weakness until RBA makes its move
Looking ahead, AMP expects further home price weakness into 2025 as continuing high interest rates, along with a rise in unemployment, pose a key constraint and downside risk to property prices.
“After rising 4.9 per cent in 2024, we expect average property prices to rise around 3 per cent this year, with weak conditions initially followed by stronger conditions in the second half as lower interest rates eventually provide a boost to prices.”
While divergence is likely to remain across Australia, Oliver said that, nationwide, key areas to watch will be interest rates, unemployment and population growth.
Namely, further delays in rate cuts, a sharply rising trend in unemployment and a sharp slowing in net migration could result in a much sharper fall in property prices.
“The downturn in the property cycle with falling house prices in several cities, and now nationally, increases the case for a start to cuts in the cash rate soon as a rising wealth boost to consumer spending from rising home prices is now fading and giving way to a negative wealth effect in some cities, albeit so far it’s modest,” the economist said.
