House price growth set to stall in 2025

House prices are expected to rise yet again in 2025 – but there could be a brief window of hope for those looking to crack the market.

Homebuyers might get a brief window of opportunity to buy in a depressed market before interest rate cuts spur on housing growth in the second half of 2025.

A new forecast has revealed that slowing home-price growth at the start of 2025 will create a much-needed buying opportunity for those who are currently priced out of the market.

REA group director of economic research Cameron Kusher predicts Australia’s housing market will stall in the early months of the new year.

“With the rate of price growth slowing and interest rates expected to remain higher for longer, along with more properties coming to market for sale, it appears 2025 is set for weaker price growth than over recent years,” Mr Kusher said.

Homebuyers might get a brief chance to get into the market before rate cuts help spur on the market. Picture: NewsWire/ Gaye Gerard

He said the increased number of homes still on the market after an unusually busy spring selling season could also make it easier for buyers to get into the market.

“Most capital cities have been seeing new listing volumes trending higher throughout 2024 as vendor willingness to put properties up for sale has increased,” he said.

Price growth set to stall

Despite a brief opportunity for first homebuyers to get a foot in the market, overall it’s still expected to be a positive year for house price growth.

According to the PropTrack Property Market Outlook, national home prices are predicted to rise by 1 to 4 per cent.

While the higher end of this scale is still above wages growth, it is less than the 5.5 per cent growth recorded so far this year and the nearly 7 per cent growth recorded in 2023.

The prediction from PropTrack is largely in line with the predictions offered by major banks.

Sydney and Melbourne house prices could fall. Picture: NewsWire / Andrew Henshaw

ANZ have updated their housing price forecasts and expect capital city housing prices to grow 2.7 per cent in 2025, while suggesting house prices will grow by 3 per cent.

It is a similar story for NAB, which is predicting growth of 4.2 per cent nationally over 2025, and Commonwealth Bank, which forecasts growth of 5 per cent.

AMP chief economist Dr Shane Oliver also says house price growth will stall in the new year.

“Australian home prices are likely to see further weakness over the next six months as high interest rates constrain demand and unemployment rises,” he predicts.

“Lower interest rates should help from mid-year though and we see average home prices rising by around 3 per cent in 2025.”

Mr Kusher said a key factor in the limited price growth anticipated next year is the outlook for interest-rate cuts, which kept getting pushed further and further back throughout 2024.

“Throughout most of 2024, households were expecting interest rate cuts to occur from late-2024 with several cuts in 2025,” he said. “However, there have been no cuts in 2024 and it is likely there will be fewer cuts than expected in 2025.”

AMP Chief Economist Dr Shane Oliver said house price growth will stagnate next year. Picture: NewsWire / John Appleyard

It follows after the RBA kept the official cash rate at 4.35 per cent at its December board meeting, with rates now holding for over 12-months.

Money markets say there is a 43 per cent chance of a rate cut in February, with 100 per cent factoring in a rate cut by April, although economists say the first rate cut may not occur until May.

The increase in available stock has boosted sales volumes but also led to softening demand, which has been a contributing factor to slowing price growth.

With more options, buyers face less urgency to purchase, and properties are spending a longer time on the market.

Sydney and Melbourne could fall

While the national markets are expecting to grow, Australia’s largest two cities might experience a pull back in property prices.

Growth in Sydney home prices is expected to shift gears next year as exhausted home seekers pull out of the market and more cash-strapped homeowners attempt to offload their properties.

PropTrack forecasts Sydney home prices will inch up 1-4 per cent over 2025. While the figure is high, it is less than previous years as affordability constrains prices.

The supply of properties for sale, which was low for much of 2024, is also expected to continue rising, giving home seekers more choice and easing pressure to bid up prices.

Meanwhile Melbourne is tipped to continue to underperform. Proptrack predicts it will grow in a range between minus 1 and plus 2 per cent.

Mr Kusher said house prices are also going to be impacted by strong supply.

“Sydney and Melbourne are currently seeing total listing volumes at highs not seen in more than a decade,” he said.

“There are many factors contributing to the strong new listings environment.

For some homeowners, the significant increase in equity is likely to be encouraging them to sell their current home and upgrade.”