Major shifts are underway that will reshape Australian property market

The tectonic plates of the property market are shifting.

Properties are taking longer to sell, regional property is back in vogue, the wealthiest suburban markets are rebounding and rental price growth has halved.

Even the long mollified Melbourne market has rebounded.

Australia’s $11.2 trillion residential real estate market is a complex beast but two years of seemingly predictable and unstoppable capital growth, rising rents and hastily snapped up properties is unwinding.

Property prices over the past three months have edged downwards in the capital cities (-0.4 per cent), while the regions have defied predictions of a downturn (up 1.0 per cent) as workers decline to return to the old office-based way of life.

While property prices this month ended three brief months of slight falls, in the wake of two years of record-setting growth, the frenzied clamour that met any property sale in the likes of Perth, Adelaide and Brisbane has abated.

Sales activity has slowed over the three months to February. Compared to last year, this summer’s sales estimates were down 6.6 per cent and were 9.5 per cent below the previous five-year average, according to CoreLogic.

Subsequently, properties are taking longer to sell.

The national median time on market has risen markedly, from a recent low of 27 days in Q3 2024 to 42 days over the three months to February.

Canberra (55 days) and regional South Australia (46 days) were the only capital or rest of state regions to see a decline in selling times compared to last year, down 13 and 5 days, respectively.

Rents are still rising but barely, and the national vacancy rate has eased from 1.0 to 1.3 per cent in the past 12 months, according to SQM Research data released Tuesday (11 March)

In every capital city in Australia, the outer suburbs have been the engine room of price growth over the past two years.

In suburbs such as Armadale in inland southern Perth, median prices have risen from $292,000 to $572,000. It’s the same story elsewhere in the country. In two years, in Mount Druitt in Sydney’s outer west, prices have leapt from below $800,000 to more than a million dollars. Brisbane’s Stafford Heights in the north eastern suburbs has seen its median property price leap by almost $300,000 in two years.

From luxury property in Perth to the elite suburbs of Sydney, this has not been the case.

Until now, perhaps.

The wealthier suburbs have long been a bellwether of what might follow in the broader property market and signs are emerging that those homes with the heftiest price tags might be heading upwards again in 2025 and beyond.

High-end markets showed strong growth in February.

Properties priced in the lowest 25 per cent of the market still recorded double the price growth of the top quartile.

The top 25 per cent of homes by value rose 0.2 per cent in February, following a 0.3 per cent fall in January. The lower quartile still outperformed in comparison, rising 0.4 per cent in February following a flat result in January.

CoreLogic Economist Kaytlin Ezzy on Wednesday (12 March) said that while still lagging behind the lower quartile and middle market, the monthly change in capital cities’ most expensive 25 per cent of values has seen the sharpest turnaround in growth compared to last month.

“The upper 25 per cent of values in Melbourne, Sydney and Hobart - which our research shows have historically been some of the most sensitive to rate changes - recorded the largest improvements,” she said.

“The top quartile is the one to watch as they tend to be a bellwether for broader market recoveries in those cities.

“If this momentum continues, the quarterly change in upper quartile values could turn positive and potentially outperform the lower quartile and middle market for the first time since August 2023.”

Where do interest rate cuts push property prices up?

Sydney and Melbourne houses and units generally have the most to gain from a reduction in interest rates and that appears to be reflected in February’s data, Ms Ezzy said.

“In Sydney and Melbourne, but also Hobart, many of the markets with a solid response to rate reductions are also seeing values well below their peak under recent interest rate rises, so easier access to credit may trigger a recovery trend in these markets.”

CoreLogic data showed that in the wake of last month’s interest rate cut, in Melbourne the biggest turnaround in capital growth occurred in (the SA3 region of) Stonnington East (including Malvern East, Armadale, Glen Iris, Kooyong, and Prahran), where the value change lifted from a 1.9 per cent drop in January to a 0.8 per cent lift in February, or a 264 basis point lift in performance. Other high-end markets like Manningham East, Bayside and Glen Eira also showed a strong turnaround.

Similarly, in Sydney the prestige SA3 Eastern Suburbs - North market - including Point Piper, Double Bay and Rose Bay - grew 2.0 per cent month on month after falling 0.5 per cent in January, marking a 250 basis-point turnaround.

Hornsby followed, with values rising 1.1 per cent in February, and posting a 200-basis-point turnaround from the previous month.

Ms Ezzy said these markets have traditionally responded strongly to changes in financial conditions.

While the RBA is playing its cards close to its cash rate-setting chest, the expectation of further cuts in 2025 could see this trend play out more strongly around the country’s top end real estate markets.

Buyers with access to more finance can only push property prices higher, in the absence of major shifts in other economic variables.