National property prices drop for first time in almost two years, CoreLogic data shows
In short:
Property prices at a national average level dropped in December, which is the first time this has happened in almost two years.
Yet there is still great price divergence between cities, and years of soaring prices have left home ownership out of reach for many.
What's next:
Analysts predict property prices will continue to stabilise in early 2025 but could rise again if the Reserve Bank cuts interest rates as predicted in May.
Australia's housing market is in a downturn for the first time in almost two years after the average national price of a property sold dipped slightly in December.
The data from CoreLogic shows the median value of property sold in the last month of 2024 was just shy of $815,000 after a price drop of 0.1 per cent.
"It really does set the scene for a soft start to 2025," CoreLogic's chief economist Tim Lawless said.
"The broad theme of the housing market is values are slowing down."
Australia's biggest cities are dragging down the national average.
Melbourne dropped off heavily in 2024 and is now the third cheapest capital city in the country.
On the flip side, prices are still soaring in smaller capitals Perth and Adelaide, with the City of Churches now the country's third most expensive capital with a median price of almost $815,000.
There are also differences between the price of apartments and standalone homes, with units going up 3.6 per cent in value overall in 2024 versus homes rising by 5.2 per cent.
"The rate of growth is slowing down pretty much everywhere, but there's still a lot of variance and variability in the statistics," Mr Lawless added.
Why property prices are going down
Property prices nationally rose almost 5 per cent overall in 2024, despite the Reserve Bank of Australia keeping interest rates at their highest level in a decade, with the cash rate at 4.35 per cent.
CoreLogic's Tim Lawless says in the last few months of the year, some buyers hit a ceiling.
"Affordability is becoming a lot more challenging — home loan borrowing capacity has come right down amid high interest rates," he said.
Mark and Candace D'Souza are self-funded retirees who recently sold an investment apartment in Sydney's blue chip suburb Potts Point. (ABC News: John Gunn)
Mark and Candace D'Souza sold their investment apartment in Sydney's blue-chip suburb Potts Point in December, after their interest repayments moved off a fixed rate to a much higher variable one in mid-2024.
The self-funded retirees had owned the apartment for a decade, and had been balancing the rent they received from their tenant with various tax concessions to create an income stream into retirement.
"With the higher interest rates, it was just not viable at all," Mr D'Souza said.
"The numbers just did not stack up. We would have to dip into our super."
The couple bought the one-bedroom apartment for $650,000 and had hoped that they would sell it for much higher than that a decade later.
"Only one person turned up at the auction, and the property got passed in," Mr D'Souza said.
"We were looking for about at least $850,000 and we had to lower our expectations to around $800,000.
"And it was on the market for a couple of months, and then we finally were able to sell at $790,000."
"I think it's just a general nervousness in the market."
The couple still used the gains on the Potts Point apartment to pay off the mortgage on a second investment property in a more suburban location.
CoreLogic's Tim Lawless said the D'Souzas experience highlighted that many apartments in big cities like Sydney and Melbourne were giving back "fairly mild" gains when re-sold.
"What we're seeing now is probably investors running up against high interest rates and generally low rental yields," he said.
Apartments are still a lot less expensive than houses in all capital cities. (ABC News: John Gunn)
Further north, a property investor with two rental apartments in Brisbane and Cairns is feeling more optimistic.
"I am feeling confident about the future even if growth isn't as strong", Tukyi English said.
"I'm breaking even on one of them and taking a loss on another, which is mainly because of overheads like body corporate (fees)."
Wealth transfer, exodus of investors
While national property prices dipped slightly in December, the past few years have left home ownership even more out of reach for many in 2025 and beyond.
"We've seen extraordinary levels of growth," CoreLogic's Mr Lawless said.
"If you add to that, the pandemic growth phase, where we saw generally housing values have risen more than 30 per cent in most cities, sometimes as much as 70 per cent in markets like Perth or Adelaide or Brisbane."
"Clearly, we haven't seen incomes rise anywhere near that much."
While the D'Souzas were disappointed at their Potts Point sale price, the couple also has children and acknowledges how hard it is for younger Australians to break into the market today.
"Our kids have got properties with high mortgages, and it's a big challenge," Mr D'Souza said.
As many Australians find themselves locked out of the property market entirely, others who come from money are breaking in with financial help from their parents.
This is the experience of mortgage broker David Meadows, who has noticed a rise in the past five years in the number of people using guarantor loans or cash deposit gifts from their parents.
"I've seen clients with lowish incomes of $60,000 to $70,000 per year getting deposits of up to $500,000 off their parents," he said.
"We've got the biggest wealth transfer in history going through. So the baby boomers transitioning all their wealth down through their kids and their grandchildren."
Mortgage broker David Meadows is seeing some lucky first home buyers arrive with $500,000 deposits thanks to the bank of Mum and Dad. (ABC News: Scott Jewell)
"We've seen an exodus of investors in the past 12 months (in Victoria)," Mr Meadows said.
"What that has meant is first home buyers have an opportunity to get into the market as the investors sell their stock."
What will happen in 2025?
Both buyers and sellers will be keenly watching the Reserve Bank in 2025.
Many economists are predicting the central bank will cut rates in May, but some think it might move as early as February.
"I think 2025 is going to be a multi-speed market," CoreLogic's Tim Lawless said.
"Once interest rates start to come down, that should provide a bit of a confidence injection to the marketplace which will boost borrowing capacity," CoreLogic's Tim Lawless said.
"We'll start to see that supporting some level of activity in the housing market, probably not enough to set up a new significant growth cycle, but probably enough just to keep a floor on housing prices."
CoreLogic's Tim Lawless predicts property prices will flatline in the first few months of 2025. (ABC News: Jessica Ross)
A federal election could also see the introduction of more measures to help first home buyers.
"Housing is going to be one of the key topics coming to the federal election," Mr Lawless said.
"I wouldn't be surprised if we see both sides of the political fence really focusing on buying.
"For example, funding infrastructure costs for developers trying to kick start new housing projects will be a great way to start to boost housing supply, and it should have some level of immediacy to it."