House prices are still too high for many Canberrans at the current interest rates. Photo: Michelle Kroll
Without a fall in interest rates, Canberra’s residential property market looks likely to continue falling in 2025 due to the widening gap between income and borrowing capacity and prices, according to new analysis from CoreLogic.
Head of research Eliza Owen said that while Sydney and Melbourne, which account for 40 per cent of the national market, had just entered a downturn, Canberra’s has been more entrenched.
Ms Owen said prices had fallen for five of the past six months and both houses and units were experiencing weaker capital growth conditions.
House prices were 7 per cent below the record high set in April 2022, but the median was not far under a million dollars at $966,000, pricing many potential buyers out of the market with interest rates at current levels.
Canberra unit price values had either been flat or down for the past 10 months, but the cumulative decline had not been as great, 5.6 per cent down from the record high in June 2022.
Units may be cheaper, but there were lots of them, and they did not always suit people’s needs, highlighting the gap in the market for the so-called ‘missing middle’.
Ms Owen said that even with some interest rate relief expected later in the year, there would not be a return to the cheap money of the pre-pandemic and pandemic days.
“The economists are forecasting that by the end of 2025, the cash rate will sit somewhere between 3.1 per cent and 3.6 per cent, so there’s no guarantee that a reduction in interest rates creates this big boom in property prices, but it would help more buyers get into the market than otherwise.
“And it would probably stabilise housing value somewhat, if not lead to an uplift, especially in a city like Canberra where values have already been adjusting to higher interest rates.”
However, Ms Owen said the Canberra market could also stall in the lead-up to the federal election expected in May, and if a Coalition government was elected promising to cut the public service, the implications could be significant.
She expected the decline to spread from the bigger markets to the regions in 2025, which could see moderating prices on the South Coast, which experienced a 2.4 per cent increase in 2024 for a median of almost $800,000. Since March 2020, South Coast prices have surged 50.8 per cent.
Ms Owen said positive factors for the market would be policies from both major parties aimed at increasing home ownership and housing supply, which could boost the number of first home buyers in 2025, and more home completions.
But affordability was at the heart of the current market decline, exacerbated by interest rates persisting at the current level.
Ms Owen said an ‘affordable’ purchase price for the median income household in Australia, based on 30 per cent of before-tax income spent on a mortgage, assuming current interest rates and a 20 per cent deposit amounted to $513,000, but the national median dwelling value was $815,000.
She said a cyclical national downturn was likely in 2025 but would not be a large one due to moderating inflation boosting real incomes to support more buyer demand and a reduction in interest rates also increasing borrowing capacity, as well as a fundamental shortage of homes relative to the population.
“Given these factors, the downturn in housing values is likely to be shallow and short-lived, but in the same sense, it’s hard to see any material growth returning to housing values, at least at a macro level, until housing affordability and loan serviceability improves more substantially,” she said.
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