Sydney and Melbourne property prices are forecast to drop by as much as 5% next year as high borrowing costs keep a lid on home values, according to a new report by SQM Research.
Meanwhile, housing shortages will push up Perth prices by up to 19%, while Brisbane properties will increase in value by up to 14%, and Adelaide by as much as 13%, according to the analysis.
The research relies on three contingencies, including an anticipated interest-rate cut mid next year, continued strong population growth rate and no new inflationary outbreak.
SQM’s managing director, Louis Christopher, said interest rate levels were “biting the community” more in areas with overvalued property markets or those experiencing slower economic growth.
“However, once interest rate cuts do occur, we are expecting a speedy bounce in demand for Sydney and Melbourne in particular, which both are still experiencing underlying housing shortage relative to the strong population growth rates,” Christopher said.
The anticipated pullback in Sydney and Melbourne property prices remains modest, and well under levels that would typically equate to a correction, keeping Australia’s notoriously high property prices out of reach for large cohorts.
Australian home prices recently hit a record high during the peak spring selling season, even after Sydney prices dipped.
SQM noted that the Melbourne market, which has not kept pace with Sydney in recent years, has recorded a surge in properties for sale by households under financial stress.
The Reserve Bank kept its cash rate at 4.35% earlier this month, after underlying inflation remained above the central bank’s target range, dashing hopes of a rate cut by mortgage holders.
Under SQM’s base case scenario, Darwin property price would rise by up to 8%. Hobart prices would stay flat, according to the projections, while Canberra’s market could fall by as much as 6%.
Overall, Australia’s capital city prices would rise by between 1% and 4% in 2025.
But the forecasts change significantly under different scenarios. If inflation remains sticky and there are no rate cuts next year, Sydney prices could fall by double digits, and Melbourne by near double digits.
Under that scenario, the anticipated gains in Perth, Brisbane and Adelaide would be more subdued, according to SQM.
While state and federal governments are designing policies aimed at increasing housing numbers, many cities are projected to have shortfalls next year that will help propel prices higher, especially in Perth.
“Ongoing strong population growth, combined with strong employment growth and an existing undersupply of homes for sale will keep driving Perth dwelling prices up over the course of next year,” the report said.
Similar forces are expected to underpin prices in the Brisbane market.
