The Australian housing market is showing signs of cooling as we move into 2025, though the picture varies significantly across different cities. While Perth, South-East Queensland, and Adelaide continue to show strength, the larger markets of Sydney and Melbourne have slowed considerably, with prices nearly flat. Hobart and Canberra are also seeing minimal growth.

This pattern is likely to continue in early 2025, driven by several factors. More homeowners are feeling the strain of high mortgage payments, and we're seeing an increase in property listings as some decide to sell. This higher supply of homes for sale could put downward pressure on prices in some areas.

However, there are three key factors that should help prevent any significant drop in house prices:

First, Australia's strong population growth continues to create ongoing housing demand. This creates a natural floor for how far prices might fall. This is particularly true in Perth and Brisbane where growth remains very strong, but is also the case in Melbourne and Sydney where international migration will remain strong, although potentially at lower levels compared to 2024.

Second, building costs remain high. The cost of constructing new homes hasn't come down, which means fewer new houses are being built. This pushes more buyers toward existing homes, helping support prices in established suburbs. The lack of new supply also means any excess demand can't be easily met with new housing.

Third, expected interest rate cuts later in 2025 could give the market a boost, particularly in more expensive cities like Sydney and Melbourne. These markets are more sensitive to interest rate changes because of their higher average mortgage sizes. When rates do start to fall, this could encourage more buyers back into the market and increase borrowing capacity.

The outlook suggests a period of modest price growth or stability rather than significant falls. Markets that have already slowed, like Sydney and Melbourne, might stay flat until rate cuts begin. Meanwhile, cities with stronger economic conditions like Perth could continue to see some growth, though likely at a slower pace than in 2024. The key timing to watch will be when interest rates start to fall, as this could mark a turning point for price growth in the larger markets.