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House prices in Sydney and Melbourne are set to decline further in 2025, while Perth is likely to experience the strongest growth among Australia's capital cities, according to SQM Research's latest Boom and Bust Report.
The report forecasts average national housing prices to rise by between 1 and 4 per cent.
That is under a base case scenario, which assumes mid-year interest rate cuts, population growth continuing at 500,000+, and no resurgence of inflation.
SQM's Louis Christopher expects interest rate cuts to deliver a "speedy bounce" in housing demand. (ABC News: Daniel Irvine)
On a global scale, it factors in an end to the war in Ukraine and easing tensions in the Middle East.
Under that scenario, Perth is forecast to lead the market, while Sydney and Melbourne properties cool, with prices falling by as much as 5 per cent.
| City | 2025 housing price forecast |
|---|---|
| Perth | +14% to +19% |
| Brisbane | +9% to +14% |
| Darwin | +5% to +8% |
| Melbourne | -5% to -1% |
| Sydney | -5% to -1% |
| Adelaide | +8% to +13% |
| Hobart | -3% to +2% |
| Canberra | -6% to -2% |
| Capital city average | +1% to +4% |
| Source: SQM Research | |
Louis Christopher, managing director of SQM Research, expects strong population growth and the ongoing shortage of new dwellings will likely continue in 2025.
"We are not anticipating much of a change in these current trends," he said.
"However, we are now anticipating a cut in interest rates starting from mid-year, which will continue the price rise momentum in Perth, Brisbane and Adelaide and keep the price falls in Sydney and Melbourne to single digits."
The report presents four scenarios based on different government policies and global economic trends to predict house price growth and decline.
Head of research at CoreLogic, Eliza Owen, said buyer demand was unlikely to rise by the beginning of 2025.
"Melbourne, Hobart, Darwin and Canberra have been in decline in recent months, which may continue in the short term, and Sydney could be pulled into a mild downturn as well given affordability constraints and limited borrowing capacity under high-interest-rate settings," she said.
"Growth in Perth and Brisbane has started to ease slightly and is expected to ease further, and Adelaide may also see some loss in momentum."
Eliza Owen says increased demand for houses would boost values in Hobart and Melbourne the most. (ABC News)
But it could be a different story in the second half of 2025 if household finances get a boost, which would support a jump in demand.
"Particularly in Hobart and Melbourne where values have fallen considerably," Ms Owen said.
Economist Marcel Thieliant from Capital Economics said house prices were likely to rise by 5 per cent by December 2025 on December 2024 figures.
"Our house price leading index still points to solid price growth over the coming months and we should get some support from rate cuts," he said.
But he said with affordability at its "most stretched since the early 1990s", any price increases were likely to be modest.
The impact of interest rates
Mr Christopher anticipates the Reserve Bank will cut interest rates by 0.25 to 0.5 percentage points by mid-2025 as inflation moderates and the economy continues to grow below trend.
If that happens, SQM expects an immediate increase in consumer sentiment, which would stimulate buyer demand and help stabilise price falls in Sydney and Melbourne.
Economists from two of the big four banks — Westpac and NAB — expect the first RBA rate cut to happen in May, while Commonwealth Bank and ANZ have forecast a February rate cut.
"Current interest rate settings are biting the community more in cities like Sydney, Melbourne, Canberra, and Hobart," Mr Christopher said.
"If rate cuts occur, these cities could see a quick rebound in buyer demand, especially given the underlying housing shortages relative to population growth."
Luci Ellis, chief economist at Westpac, now expects the RBA to "front-load" its rate-cutting cycle by delivering consecutive cuts in late May and early July.
"The longer the RBA board waits, the faster they will need to move thereafter, as it would then be more likely that they have hesitated too long," she said.
"As always, our view on the cash rate is predicated on things turning out broadly as we expect, which can differ from the RBA's own view."
Ms Ellis pointed to the RBA's latest meeting minutes, which showed the board wanted to see "more than one good quarterly inflation outcome" to be confident a decline in inflation was sustainable.
"This is almost certainly how the board and staff are thinking about the outlook," she said.
"It suggests that they will wait for longer than we previously believed.
"We are mindful, though, that things can pivot quite quickly, and that the RBA's view of the economy looks somewhat more hawkish than we think is warranted."
Boom to bust price predictions
Under the SQM report's other three scenarios for the nation's housing market in 2025, prices range from 20 per cent growth in Perth to a 10 per cent decline in Sydney.
The second scenario assumes no rate cut at all next year, continued strong population growth, and steady inflation.
That could lead to an even larger drop in house prices in Sydney, Melbourne, Hobart and Canberra, but growth in Perth, Brisbane, Adelaide and Darwin.
The combined capital city average would range from -3 per cent to +1 per cent, the report states.
In another scenario, a rate cut earlier than May would lead to house price growth in every state, including up to 20 per cent growth in Perth and 16 per cent in Brisbane.
Under the worst-case scenario, population growth would fall below 400,000 people, there would be no rate cut, and commodity prices would remain firm.
That could lead to Sydney and Melbourne recording heavier price falls of up to 10 per cent as "these two cities take the lion's share of new long-term overseas arrivals", the report predicts.
Perth, Brisbane and Adelaide prices would still rise under this scenario — just at a slower rate compared to 2024.
Next year's federal election is also unlikely to affect prices in the short term, the report says, but an election campaign focused on housing and migration policies may influence housing conditions the following year.