Interest rate cuts boost sentiment, but affordability and supply challenges persist
While Australia’s housing market experienced a subdued end to 2024, February data suggests a modest recovery, particularly following the Reserve Bank of Australia’s (RBA) decision to cut interest rates mid-month, according to Westpac’s latest quarterly housing market report.
Housing prices fell in late 2024 but saw a slight increase in February, bringing annual growth across major capital cities to 3.2%. Market turnover remained weak through the end of the year, although revised data may indicate higher activity levels than initially reported.
Auction clearance rates in Sydney and Melbourne improved in early 2025, showing signs of renewed buyer interest. Meanwhile, housing sentiment is beginning to recover from recent lows, though consumer expectations for price increases have softened.
Matthew Hassan (pictured above), head of Australian macro-forecasting at Westpac, described the market as “delicately poised” following an unsettled holiday period.
“Our first Housing Pulse report for 2025 finds markets coming off an unsettled Christmas–New Year period, with prices slowing – continuing to dip slightly in Sydney and Melbourne – and turnover pulling back,” he said.
Over the past three months, price growth has slowed across all major cities. Perth recorded the highest annual growth at 15%, followed by Adelaide (12%) and Brisbane (10%). Sydney and Darwin saw 1% growth, while prices remained flat in Canberra and Hobart. Melbourne was the only capital to record a decline, with prices falling 3%. Regional markets have generally mirrored the trends seen in their respective capital cities.
Housing supply remains tight, particularly in Brisbane, Adelaide, and Perth, where rental vacancies are extremely low. Sydney and Melbourne, however, are showing early signs of loosening rental conditions.
Westpac’s Housing Pulse showed that overall, property prices across the major capitals dipped 0.2% over the three months to February, following a period of stability through November. Annual price growth has slowed to 3.5%, a sharp decline from the 10.9% recorded in February 2024.
Turnover declined by 10% over the three months to January, exceeding the usual seasonal drop. Even with potential revisions, overall transaction volumes remain materially lower than in previous years.
Consumer attitudes toward housing have been mixed. The Westpac Melbourne Institute’s “time to buy a dwelling” index rose 1.2% over the three months to February, reaching 87.8. While this is an improvement from recent lows, it remains well below the long-term average of 120. Buyer confidence is at levels last seen after the 2009–10 interest rate tightening cycle.
“Sentiment moves have been mixed, with a clear thawing in what have been deeply pessimistic buyer attitudes over the last two years partially offset by less bullish price expectations,” Hassan said. “More generally, affordability remains challenged and supply tight.”
He noted that while interest rate cuts are expected to provide some support to the market, price growth may remain subdued.
“The interest rate part of that view is looking more assured with the RBA cutting the official cash rate by 25 basis points at its first meeting in February and sending a clear message that further easing is not assured and would likely be gradual and modest," he said.
Westpac expects an additional 75 basis points in rate cuts throughout the year, with one reduction per quarter before a pause at year-end. Commonwealth Bank has a similar outlook, forecasting three more cuts this year, bringing the rate to 3.35%. NAB predicts that the RBA will cut the cash rate four more times, while ANZ anticipates just one more cut, which would lower the rate to 3.85%.
“The question now is ‘how will markets respond to these rate cuts?’” Hassan said. “Housing has been famously sensitive to interest rate moves in the past, and the very early signs suggest we are already seeing a positive shift after the RBA’s February move.”
However, he cautioned that past market cycles have not always aligned with interest rate trends, citing strong price growth in 2023 despite rising rates. He pointed to population growth as a key factor in that divergence, which may not provide the same level of support in 2025.
“How that balance plays out against a backdrop of stretched affordability and tight supply is unclear,” Hassan said. “There looks to be significant ‘latent’ demand for housing activity poised to come through this year, but affordability is poor in absolute terms almost everywhere while the supply side is offering no hope of a reprieve any time soon.”
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