Category: Articles

Mortgage stress is affecting a large number of Australian homeowners, with more than 1.5 million borrowers now classified as ‘at risk’. This occurs when mortgage repayments exceed 30 per cent of gross household income, placing pressure on household budgets and reducing financial flexibility.

Although many homeowners continue to meet their repayments, rising interest rates and cost-of-living pressures are forcing them to cut back on essential expenses or dip into savings. With the Reserve Bank of Australia (RBA) holding interest rates at a 13-year high, financial strain remains a key concern in the housing market.

Importantly, being in mortgage stress doesn’t necessarily mean a borrower has missed a payment. Many still meet their obligations but must make financial sacrifices to do so.

Mortgage delinquency, on the other hand, occurs when a borrower fails to make their mortgage repayments on time. If a mortgage remains unpaid for an extended period, it can lead to foreclosure, where the lender takes possession of the property. While mortgage stress can be a warning sign, not all stressed borrowers become delinquent.

According to Roy Morgan, 26.8 per cent of mortgage holders, approximately 1,514,000 Australians, were considered ‘at risk’ in November 2024. This marked a small increase from October but remained 3.5 per cent lower than June figures, thanks largely to the stage three tax cuts that boosted household incomes.

High interest rates continue to put pressure on homeowners, with the RBA – for now – maintaining the cash rate at a 13-year high of 4.35 per cent.

This has significantly increased mortgage repayments, particularly for borrowers on variable rates. Some of the larger banks have started adjusting both their variable and fixed home loan rates in anticipation of an interest rate adjustment by the RBA late on 18 February.

If the RBA lowers interest rates by 0.25 per cent to 4.10 per cent in February, the number of mortgage holders ‘at risk’ is projected to fall by 26,000 to 1,488,000 (26.3 per cent), bringing much needed relief to many homeowners, especially for those investors who have large mortgages relative to their income.

Stagnant wage growth has also played a role, with many households struggling to keep up with the rising cost of living. When expenses outpace income growth, mortgage stress becomes more widespread.

What should property investors do?

For property investors, the situation presents both risks and opportunities.

Higher investment loan repayments can strain cash flow, particularly in geographical markets where property values have stabilised and rental yields have potentially stagnated.

Investors should regularly assess and track all income and expenses and identify potential savings. Reducing discretionary spending and prioritising essential costs can provide some breathing room.

As lenders pre-emptively adjust mortgage rates in anticipation of a potential interest rate adjustment in February, negotiating with your lender becomes a critical step. Refinancing can help secure a lower rate, while fixed-rate mortgage options offer stability in a high-rate environment. Additionally, offset accounts and redraw facilities can be leveraged to reduce interest payments and improve cash flow.

According to the recently released API Magazine Property Sentiment Report Q4 2024, of the 78 per cent of respondents who identified as a landlord, only 21 per cent said they would be willing to lose a good tenant to pursue higher rental returns. But increasing rental income where market conditions allow can help boost cash flow, while diversifying into short-term rentals can also create new income opportunities.

Source: Finder

For investors with underperforming properties, selling may be a strategic move to free up capital for reinvestment in higher-performing markets, like commercial property.

One often-overlooked way to ease mortgage stress on an investment property, is by maximising tax depreciation benefits. Investors can claim depreciation on their investment properties, reducing their taxable income and ultimately increasing cash flow.

CoreLogic data shows Australian home values remained steady in January.

The Domain property group forecasts national house prices to rise by 4 per cent to per cent in 2025 and KPMG predicts a 3.3 per cent increase over the next 12 months, indicating that despite the challenges, the Australian housing market remains a viable investment space if strategic investment decisions are made.

While mortgage stress remains a persistent concern, having a reliable team of property experts, including financial advisers, mortgage brokers and tax depreciation specialists can help property investors take strategic steps to manage their financial position effectively and avoid mortgage stress, while optimising their tax deductions, maximising cash flow and retaining their property assets.

Perth’s million dollar property club is set to welcome a host of new members in 2024.

Twenty suburbs with a median home price in the $900,000s are poised to surpass the million dollar mark in a city where the overall median dwelling value stands at $809,870.

The list released by REIWA on Wednesday (12 February) encompasses an even split between north and south of the Swan River, and a similar spread between outer and inner suburbs.

CathHart, CEO, REIWA, said the list was based on the overall expectation for Perth property prices to increase five to 10 per cent this year, and these suburbs’ individual growth trends.

Ms Hart said price growth was affected by a number of factors.

“An overall growth environment, as we’re experiencing now, will see prices increase in general,” she said.

“A more specific factor is the demand to live in a particular area; the greater the demand, the greater the upward pressure is on prices.

“Demand can be driven by a suburb’s proximity to schools, lifestyle hubs, the city, coast and river, while an improvement in local amenity can boost demand.”

There was an explosion of new million dollar suburbs in 2024 but this year may see more modest growth in the club’s membership.

Five million dollar Perth hotspots

The diversity of suburbs on the list highlighted the individual traits of each area that would likely fuel capital growth in 2025.

From semi-rural Jarrahdale to Joondanna’s inner suburban unit-heavy profile, the variety of suburbs created contrasting points of interest to different buyers and investors.

Julie Kelley, Global Sales and Marketing Manager for aussieproperty.com, identified five suburbs on the list that stood out as presenting value to different buyer demographics.

Lathlain, second on the list and needing only nominal annual price growth to reach the $1 million mark, was not necessarily the best investment prospect for the average buyer.

“Lathlain, just south of the city and with established but ageing homes, is attracting developers drawn to the old blocks with the scope to knock down and build multiple dwellings.

“It’s a viable investment for developers and those with the know-how to profitably subdivide and build at a time when construction can very easily run over time and budget.

“It’s not necessarily the best place in Perth for the average buyer who is hoping to attract strong capital growth in the near-term.”

North suburban Connolly and Woodvale, sitting first and sixth on the list, were an entirely different proposition, according to Ms Kelley.

“The prospects for Woodvale are amazing.

“It has a great school catchment, is well connected to the freeway for city access and is a 12-minute drive from Burns Beach.

“Woodvale is generating continued strong demand from families and this will only be embellished by the ongoing development of new sports facilities in the area,” Ms Kelley said.

Connolly, where prices have risen almost $200,000 in two years, was expected to continue its stellar price growth due to continued infrastructure improvements and popularity with families.

Closer to the city, Joondanna, (13th) still has growth potential, Ms Kelley said, and was popular with the DINK (double income, no kids) demographic but buyers should be focused on purchasing homes with a sizeable plot of land, due to the already high supply of apartments and townhouses.

Willagee, in the heart of the southern suburbs east of Fremantle, was undergoing a major transformation that would see its median price likely take off from below $915,000 to more than $1 million.

“Willagee is hugely popular with older families, namely those with teenage children and solid employment credentials.

“The suburb is gentrifying,  with older homes making way for contemporary and luxury builds as part of a massive redevelopment unfolding there,” Ms Kelley said.

Bridesmaid suburbs delivering capital growth

REIWA’s Ms Hart said price growth in Perth was affected by a number of factors.

Ms Hart said prices can increase as a flow-on effect from price growth in neighbouring, or so-called bridesmaid, suburbs.

“As a popular area becomes less affordable, buyers turn their attention to adjacent suburbs,” she said.

“Many of the suburbs on track to join the million dollar club in 2025 are located next to existing members of the club,” she said.

“For example, Iluka joined the million dollar club in 2023, and neighbouring Connolly is one of the suburbs on track to see its median house sale price reach the $1 million threshold this year.

“South of the river, Winthrop and Murdoch are fairly new entrants to the million dollar club, and nearby North Lake and Kardinya are now approaching the million-dollar mark.”

There does, however, remain downward pressure on property price in Perth that will very likely see 2025 deliver more modest growth than last year’s 17.1 per cent (or $118,000) boom.

New listings are now at their highest since 2022, while homes are also taking longer to sell now than last year.

Perth is now recording a slower rate of growth than Brisbane and Adelaide over the rolling quarter, according to CoreLogic data.

In the June quarter of 2024, growth in Perth home values was 7.1 per cent, easing back to just 1.0 per cent growth in the three months to January.

Rental yields in Perth are still above all other capitals except Darwin and Hobart, at 4.2 per cent. Rents for the past 12 months are up 7.4 per cent for houses and 8.8 per cent for units.

With the fifth highest price in the world per square metre, Australian homes are increasingly moving beyond reach of the average Australian.

Housing affordability in Australia is at an historic low, with the proportion of median family income required to service an average loan repayment climbing to 48.6 per cent.

It now requires the entirety of 147 monthly pay packets for the average wage earner in Australia to buy the median priced home, which is now worth $814,000.

While times are definitely tougher for today’s generation of home buyers seeking a slice of the great Australian dream, on a global scale we actually have cause to breathe a sigh of relief.

In a measure of housing affordability in 62 countries around the world, Australia is still a relatively lucky country.

It ranked a favourable 12th in terms of affordability on that measure, according to a major study by UK-based BestBrokers, one place behind New Zealand.

South Africans enjoyed the most affordable property, requiring just 71 net monthly wage payments to buy a home. Although their monthly income was just A$2,165 (compared to Australia’s $6,898), they were only paying $1,456 per square metre for the median priced home, compared to Australia’s comparatively huge $9,847 (The median price of an apartment for sale is $12,477/m². For houses, the median price is $4,505/m²).

Rounding out the top ten were the US (76 monthly salaries), Bahrain (99), Denmark (114), Ireland (123), Sweden (129), Spain and Belgium (132), Cyprus (139) and Norway (140).

At the most expensive end of the spectrum was Nepal, where high prices and low incomes meant it required a debilitating 684 (or 57 years’ worth) of monthly salaries to buy the average home. Turkey (631), India (578) and Indonesia (563) offered almost as little hope to home buyers.

Paul Hoffman, financial expert at BestBrokers, said with inflation slowing down in 2024, central banks in major economies have begun cutting interest rates, yet the cost of mortgages is still discouraging people from purchasing a home.

“Home buyers in some countries benefit from low interest rates on house loans in combination with relatively high average income, whereas in struggling economies, purchasing a home is now nearly impossible for most.”

Many analysts, he said, prefer tracking not only CPI (consumer price index, typically used to express inflation) but also the so-called “real” mortgage interest rates, i.e. mortgage interest rates when inflation is accounted for.

“Using projected inflation rates for the third quarter of 2024, we calculated the ex-ante real interest rates of mortgage loans in 62 countries around the world.

“When the effect of inflation is removed, countries such as Sweden, Switzerland, and Spain end up with negative mortgage interest rates.

“Hyperinflation, however, leads to even more abnormal results, with Turkey now having a negative interest rate for mortgages of -10.84 per cent, while the triple-digit annual inflation in Argentina has caused real mortgage interest of -175.89 per cent.”

Australia’s nominal fixed interest rate is 6.28 per cent but as a real mortgage interest rate it stands at 3.48 per cent.

Despite the relatively rosy picture painted of Australia’s property market from a global perspective, many Australians will take cold comfort from a worsening situation.

Just 28 per cent of Australians are optimistic about their financial outlook for 2025, as rising living costs continue to strain household budgets, according to a recent Canstar report.

Cost of housing is Australians’ top concern in 2025, closely followed by food costs.

The outlook doesn’t look any better when the majority of Australians anticipate house price growth through to 2026. The recently released API Magazine Property Sentiment Report Q4 2024 found that 69 per cent of respondents expect property price growth over the coming year.

If there was a ray of sunshine for prospective buyers, more Australians this year feel confident the RBA and the government can ease inflationary pressures and reduce the cost of living in 2025.

And there’s always this world map to look at for some cheering up if you’re in Australia, where those 147 pay packets look like a reasonable deal compared to most places.

Sydney, Melbourne and luxury markets around Australia are best positioned to generate property price growth if interest rates drop markedly throughout 2025 and into next year.

That’s the finding of data researchers CoreLogic based on comparative research of other periods when Australian interest rates were tumbling.

The report, co-authored by Eliza Owen, Head of Research Australia, and Robin Han, Senior Quantitative Analyst, said that overall, the markets that stand to gain the most from a cash rate cut could be those that have demonstrated more sensitivity to changes in financial and interest rate settings in the past.

“These are typically the higher-end markets of Sydney and Melbourne, many of which have also seen a substantial reduction in home values amid rate rises,” the report released Monday (10 February) noted.

“A reduction in the cash rate could spur a recovery trend in the high end of the Sydney and Melbourne housing market, which tend to be the bellwether for broader market recoveries in those cities.”

In the face of higher listings that are putting downward pressure on property prices, widely expected interest rate cuts are expected to reignite the market.

CoreLogic predicts that based on previous periods of rate reductions, national dwelling values would increase an average of 6.1 per cent for each 1 percentage point decline in the cash rate.

Those gains would likely be gradual, given the Reserve Bank of Australia would need to make four full quarter percentage point cuts to reach that level, at a time when RBA Governor Michele Bullock remains publicly cautious about the downward trajectory of inflation and the pace of any unwinding of rates.

But if the official cash rate was to fall to 3.35 per cent, it’s the larger eastern seaboard capitals that are seemingly best positioned to generate higher capital growth rates.

The tables below show the Australian house and unit markets that have had the strongest response to cash rate reductions nationally between 2015 and 2019. These markets are also generally down from peak values, suggesting they have had a strong response to interest rate rises since May 2022.

(Source: CoreLogic)

Based on CoreLogic’s analysis, relatively expensive markets have historically shown stronger responses to reduced cash rate settings, especially in the house sector.

Key examples are houses in Leichhardt, Whitehorse and other inner markets of Sydney and Melbourne that have previously shown the strongest reaction to a reduction in the cash rate.

“Sydney and Melbourne houses and units seem to have the most to gain from a reduction in interest rates,” the report noted.

“Unit markets with the biggest response to rate falls have a high price point, a high concentration of investment ownership, or both.

“In Sydney, Melbourne, Hobart and Canberra, 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.”

The Brisbane markets that have historically had the strongest reaction to a reduction in interest rates are also relatively expensive. With the exception of Browns Plains, each of the top ten house markets had a median house value of at least $1 million.

Adelaide, Perth real estate markets have less to gain

Adelaide and Perth have been at the forefront of property price growth among Australian capital cities and subsequently are seen as having less potential to push much higher if rates fall.

Both markets are generally perceived as less sensitive to the cost of credit and more impacted by their economic circumstances, especially Perth and the mining sector.

“The relationship between the cash rate and home values is far less pronounced in markets across Adelaide and Perth, which had very different market performance throughout the 2010s – a reminder that housing markets respond to a broad range of factors.

“In Perth and WA, market values were far more influenced by the boom-and-bust conditions in the mining sector than movements in the domestic cash rate target.

“South Australian dwellings had slow and steady value changes throughout the 2010s, before seeing a rapid ‘catch up’ in home values through the Covid period.”

(Source: CoreLogic)

Listings countering rate cut price prospects

Prospects of a rapid reversal of the current easing of conditions in the Australian property market are based on interest rate cuts that are far from a fait accompli.

For now, the increase in the number of properties being listed for sale is having the biggest impact on the market.

Domain’s latest Market Insights for January 2025, released Friday (7 February) highlight a record-high level of supply as the selling season kicks off.

New listings across the combined capitals increased again in January, marking the largest monthly increase since 2019. They reached record highs in Sydney, Melbourne and Canberra, the third highest on record in Adelaide, and the highest since 2022 in Brisbane and Perth.

Domain’s Chief of Research and Economics, Dr Nicola Powell, said homes are taking longer to sell with an increase in days on market across most cities, including Sydney, Melbourne, Brisbane, Perth, and Hobart.

“The continued rise in new stock suggests sellers are encouraged by stable demand and resilient property values,” she said.

“The high chance of a rate cut has potentially also brought some formerly hesitant sellers back to the market.

“The higher supply is giving buyers more time to make decisions and assess the market, meaning the time it takes to sell a home is extending across most capital cities.

“This may be prompting sellers to adjust pricing expectations to get a quicker sale but with a potential rate cut at our doorstep, we could see buyer demand increase again in the coming months.”

he Perth property market has undergone significant fluctuations over the past 20 years, reflecting broader economic conditions, shifts in population, and the volatile nature of Australia’s mining boom and bust cycles.

For property investors, understanding these trends and the drivers behind them is critical to making informed decisions.

Over the past 20 years, Australia’s capital cities have experienced varied property growth trends, with some cities seeing far higher returns than others.

Hobart has been the standout performer, with its median house price increasing by a staggering 5.9 times since 2002, from $123,300 to $727,000​, and regional Tasmania has been similarly outstanding.

Adelaide also saw strong growth, with prices increasing 4.1 times, from $166,000 to $680,000​.

Canberra’s property prices grew by 4.08 times, from $245,000 to $999,000​.

Sydney and Melbourne had significant price increases, with Sydney seeing its median house price more than triple, from $365,000 to $1.27 million​. Melbourne’s prices also more than tripled, from $241,000 to $842,000​.

Brisbane’s median house price quadrupled, from $185,000 to $750,000​.

Perth and Darwin had more moderate growth, with Perth’s prices rising 3.05 times (from $190,000 to $580,000) and Darwin’s 3.16 times (from $190,000 to $600,000)​.

From 2004 to 2024, Perth’s property market experienced cycles of rapid growth, stagnation, and decline. Looking at the cycles, lets break down the cycles that have dominated the Perth market for the past two decades.

1. 2004-2007: The Mining Boom
   • Growth period: During this time, Perth’s median house price surged due to the mining boom. Fuelled by a strong demand for resources, an influx of interstate and overseas workers drove housing demand.
   • Key suburbs for growth: Mining-affiliated suburbs such as Baldivis, Ellenbrook, and suburbs in the Pilbara region (e.g., Karratha and Port Hedland) saw unprecedented price hikes, with many investors buying there with a speculative view on future growth.
   • Median house price: The median house price in Perth rose from around $200,000 in 2004 to nearly $500,000 by 2007.

1. 2008-2012: The Global Financial Crisis (GFC) and aftermath
   • Retraction period: The GFC in 2008 triggered a cooling of Perth’s market, with declines in housing demand. Median house prices stagnated and, in some areas, declined.
   • Biggest declines: Mining towns like Karratha and Port Hedland saw the steepest drops, with some properties losing up to 40 per cent of their value as resource projects slowed. Within Perth, outer suburbs like Mandurah experienced significant declines due to overdevelopment and reduced demand, burning many investors and leaving them with little equity or gains.

1. 2013-2014: Recovery phase
   • A period of stability: As the global economy stabilised, Perth’s housing market briefly recovered. Median prices rose, though not to the levels seen during the mining boom. Inner-city and established suburbs like Subiaco, Mount Lawley, and Leederville became prime targets for buyers.

1. 2015-2020: Post-boom decline
   • Retraction period: The end of the mining construction phase caused significant job losses, leading to population stagnation and oversupply in the housing market. Between 2015 and 2017, the median house price dropped from $560,000 to $480,000.
   • Biggest declines: Outer suburbs, particularly those with new developments like Ellenbrook and Byford, were hit hard due to oversupply. Coastal suburbs like Mandurah also saw prolonged price declines.

1. 2020-2024: The COVID-19 effect and recovery
   • Growth period: The pandemic initially caused uncertainty, but government incentives, low interest rates, and the shift to remote work spurred housing demand. Perth experienced price growth, particularly in lifestyle suburbs such as Fremantle and Cottesloe, and areas with large blocks of land suitable for families.
   • Current trends: By 2024, Perth’s median house price is approximately $585,000. Growth has been supported by strong interstate migration, affordability compared to eastern capitals, and robust local demand.

Some suburbs had more notable declines than others and while many are tied in to mining, that hasn’t been the only driver of downward pressure on the Perth market.

Mandurah: A popular coastal suburb that saw its median price drop significantly during the post-mining boom years due to an oversupply of housing and reduced demand.

Karratha and Port Hedland: Resource-dependent towns experienced extreme volatility. Median house prices, which soared during the boom, plummeted as projects wound down.

Ellenbrook: This outer suburb faced challenges of oversupply and declining buyer interest during the 2015-2020 period, leading to notable value drops. However, with the train line extension to the area, this is set to boost demand and support more sustained price growth.

Looking ahead, the Perth market offers a clear lesson for investors, such as the critical nature of timing and location. Established inner-city suburbs have shown resilience over time, while outer and resource-dependent regions remain high-risk, high-reward areas.

Understanding the broader economic context and closely monitoring supply and demand dynamics can help mitigate risks, as well as the infrastructure that will support sustained demand to outer metro areas.

While regional areas have boomed in Western Australia throughout 2024, buyers should be very cautious that they aren’t purchasing in locations that are being propped up by interstate investors.

This is a phenomenon known as a two-tier market, which inevitably will retract when demand softens.

There is a real risk in the coming years that the regional areas of WA could be the next version of past ‘mining boom and bust’ if the supply and demand is imbalanced and the sustainability of key fundamentals is lacking.

roperty price growth may be slowing but an investor boom is still unfolding in Australia.

Loans to real estate investors have grown significantly faster than owner-occupier loans in all states except Victoria, which continues to underperform as a market.

Western Australia continues to dominate as Australia’s hotspot for buying activity, leading the nation in annual loan growth for owner-occupiers and investors, according to data released Friday (20 December) by Money.com.au.

Western Australia leads the nation in loan growth, ranking first in both owner-occupier and investor loans, with investor loan growth more than double the national average.

Investor loans in WA are significantly ahead of other states, with a staggering 43 per cent annual growth, far surpassing the next best state, Queensland, at 24 per cent.

In the owner occupier category, Western Australia ranks first in all areas except loans for existing properties, where it is fifth out of six. The stateʼs property market growth is primarily driven by significant increases in loans for construction, new properties, and land, highlighting the strong focus on new builds.

While Victoria’s investor loan market is weak, it leads the nation when it comes to owner-occupier loan growth. Deterred by a relatively high taxing environment, new property loans for investors have dropped by 20 per cent as landlords shun the state for other locations.

Investment action in New South Wales is behind only WA and Queensland. The loan market in NSW is stronger in investor loans, outperforming the Australian average, while owner occupier loan growth lags behind.

Record profits for property sellers

Those who are active in the property market are reaping the rewards.

New data from CoreLogic that analysed 95,000 resales over the third quarter of 2024 revealed that 95.0 per cent of property sales were profitable for the seller.

The profits were lucrative. The median nominal gain from resale reached a fresh record high of $295,000.

The gulf between Victoria and other states’ property markets was again evident.

Brisbane was the most profitable region for the second consecutive quarter, with 99.4 per cent of resales making a nominal gain. Adelaide followed closely at 99.0 per cent, while Sydney had the highest median nominal gain from resale at $370,000.

Melbourne was the only capital city to see a fall in the rate of profit-making sales over the quarter, down about 10 basis points to 90.1 per cent.

Owner-occupiers are finding the lending environment tougher than investors with ample equity and access to credit.

High interest rates make it harder for borrowers to qualify for larger loans or even loans of any size. For every increase of 0.50 percentage points in interest rates, the average person’s borrowing capacity falls by about 5 per cent, according to PropTrack senior economist Paul Ryan.

Since 2022, the Reserve Bank of Australia (RBA) has increased official interest rates by 4.25 percentage points, thereby reducing the average person’s borrowing capacity by about 40 per cent.

“If and when the RBA starts cutting rates, borrowing capacities will rise. In the meantime, the banking regulator, APRA, could achieve the same outcome by reducing a thing called the mortgage serviceability buffer,” Mr Ryan said.

Currently, to protect borrowers and the banking system, lenders need to add a buffer of at least 3 percentage points when assessing someone’s ability to repay a home loan – so if, hypothetically, you applied for a loan with an interest rate of 6.20 per cent, lenders would assess whether you’d be able to make your mortgage repayments if the rate rose to at least 9.20 per cent.

There was some good news for those planning to buy in early 2025, with the latest data suggesting conditions have turned in favour of buyers.

During this year’s spring selling season, sales volumes across the country were 4 per cent lower than the spring average in 2019-23, according to CoreLogic.

At the same time, the median amount of time required to sell a home rose from 28 to 32 days between the August and November 2024 quarters.

Helen Avis, Director of Finance, Specialist Mortgage, said for those with a deposit and credit availability, the coming year could be a positive one.

“It all points to a market in which, increasingly, vendors are having to compete with other vendors to sell their home, rather than buyers having to compete with other buyers to purchase a property.

“That suggests there will be pressure on vendors to reduce their asking prices as we head into 2025, which will give buyers more negotiating power.”

Australian property prices nationally took a slight backwards step in December but the prospects of an interest rate cut and a raft of other financial factors that will shape 2025 could have a major impact on the current downwards trajectory.

While all capital cities are seeing real estate values decelerate, the monthly and quarterly capital growth gains continue for the perennial performers Perth, Adelaide and Brisbane, while Darwin has also resurrected as market.

But Melbourne’s property market has been Australia’s weakest performing capital city for home price growth since March 2020. According to CoreLogic, it’s median dwelling value of $774,093 is well below the aforementioned trio all in the $800,000s and only above Hobart ($651,043) and Darwin ($496,871).

Sydney, the nation’s largest property market by volume and value, is also weighing on the national market.

Sydney’s fall in December of 0.6 per cent almost matched Melbourne’s (-0.7 per cent) and was a major contributor to national prices sliding 0.1 per cent. It was the first time in almost two years that real estate prices had retreated nationally.

Source: CoreLogic

Real estate prospects in 2025

Whether interest rates are cut early or late in 2025 will likely have a major impact on property prices.

While the price of most goods and services won’t be falling, the Reserve Bank expects prices to rise at a more sustainable pace in 2025.

The RBA expects headline inflation will rise in the second half of next year with the end of the electricity rebates, however, trimmed mean inflation, which takes out irregular or temporary price changes, will hit the top of the central bank’s 2-3 per cent target band by mid-next year, and drop to 2.8 per cent by the end of 2025.

Canstar’s Data Insights Director, Sally Tindall, said this year has been one of the toughest 12 months financially for millions of households battling rising rents or super-sized mortgage repayments, on top of ever-growing grocery bills and other essential expenses.

“While 2025 should bring some relief to borrowers in the form of RBA rate cuts, no one knows for certain when they will land and, in fact, there’s no iron-clad guarantee we’ll see cuts next year at all.

“The annual indexation of key support payments will be welcome relief for anyone living off these funds.

“While for many households, this extra money won’t come close to bridging the budget black hole, it will play a small part in helping these families pay for everyday essentials.

“The government’s much-anticipated Help to Buy program, when it does finally get up and running, will provide lower income first home buyers with another potential path on to the property ladder.

“While it does nothing to put a lid on property prices, which is typically the biggest hurdle for first home buyers, it gives low and middle income Australians the ability to own at least part of their own home while limiting the amount of debt they take on.”

REINSW Chief Executive Tim McKibbin told API Magazine it would likely take a rate cut to spur investors back into the market, along with a relaxation of “anti-landlord” reforms.

Strong employment figures might mean those rate cuts are delayed longer than many anticipate.

Real estate markets a mixed bag

The variation among capital city real estate markets was matched by the gap between city and regional areas.

According to PropTrack, capital city areas led the national decline, falling by 0.25 per cent over December. Regional areas were more resilient, rising by 0.03 per cent.

Anne Flaherty, REA Group Senior Economist, said that while December was the first month in which national home values declined in two years, price growth momentum had been slowing since March 2024.

“This slowdown has been seen across both capital city and regional areas, with outperforming markets such as Greater Perth also experiencing this trend.

“Contributing to the slowdown – and reversal – of price growth, the number of properties for sale has been relatively high over the second half of 2024, particularly compared to the same period in 2023 and this has given buyers more choice and we’re seeing them take more time when purchasing.

“While the impact of stage 3 tax cuts which took effect in July bolstered borrowing capacities for some buyers, this has been counteracted by softer economic conditions.

“In particular, interest rate cuts that were originally anticipated prior to 2025 have now been pushed back.

“The best performing regions for home price growth over the past 12 months can primarily be found in Queensland and Western Australia, which account for nine of the top 10 highest growth markets.”

Could a Melbourne property recovery emerge?

Not everyone was writing off the Melbourne property market.

Victoria’s property underperformance is in part due to its success at building more homes compared to the other states but it also continues to see a strong investor exodus due to significant tax deterrents decreasing demand and driving up supply.

Daniel Senia, co-Founder, Greenfield Homes, said Melbourne is currently undervalued, however, this was all likely to change in 2025.

“Lower interest rates will start to free up borrowing capacity for buyers of both established and new homes throughout 2025, however, this increase in demand for homes with continued strong demand for rental properties will lead to a short-term spike in prices, leaving many buyers in the same position they find themselves in now, albeit with higher mortgages at lower interest rates”, Mr Senia said.

“Many sellers that have been on the sidelines waiting to exit stock until demand returns will begin putting homes to market.

“This increase in supply, is unlikely to reduce prices as across most markets, particularly Melbourne, where we have most likely seen the bottom.

“The increase demand from new buyers, with better borrowing ability will negate, if not reverse, the normal market downward pricing dynamics of an increase in established stock.”

I’m here to tell you that you don’t need to be rich to invest, in fact property is one of the best ways to secure your financial future.

In 1998 the total value of housing in Australia was $1 trillion. Today, it’s a whopping $11 trillion.

Despite sentiment to the contrary, there are plenty of affordable locations for “mum and dad” investors across this great country right now.

Property prices at the affordable end of the market don’t crash. They go up, they flatline, and then they go up again. During the past 50 years the median house price in Australia has only gone down four times: 3 per cent in 1998; 4 per cent in 2011; 6 per cent in 2018; and 3.5 per cent in 2022.

I’m talking about the affordable end of the market—the median house price. Data shows that the $5 million-plus market has dropped by up to 25 per cent in certain areas and that the $2 million-plus market has declined by 15 per cent.

The Australian Tax Office releases data every couple of years that provides a snapshot of Australia’s 2.3 million property investors.

While it probably doesn’t come as a shock that CEOs and general managers top the list, it may surprise many that nurses come in third and teachers, admin assistants, sales assistants, police officers, and office clerks all make it into the top 20.

The solution to the current housing crisis won’t come from homeowners upgrading their existing homes but from first-home buyers and new investors.

Recent data from the Australian Bureau of Statistics shows that between them, the average Australian couple working in the private sector earns $191,000, while those working in the public sector earn a combined pre-tax income of $219,000.

When factoring in the 30 per cent mortgage threshold and the 3 per cent buffer the banking regulator APRA asks Australian banks to factor in when assessing borrowers’ ability to repay loans, research conducted by JLF Group proves that there are plenty of affordable suburbs for ‘mum and dad’ investors looking to break into the Australian investment market right now.

Brisbane, Perth, Adelaide and the outskirts of Melbourne retain relatively good affordability.

Affordability cushions the effects of property cycles. It also ensures that when you decide to sell your investment property, you know that anyone with a job will be able to buy it.

The key to selecting the right location for investment is to find areas with growing populations.

Those are the usually going to be locations that are close to big employers, so something close to hospitals, universities, industry areas, that type of thing.

Of course, you still need to select the right type of property in these locations. We believe houses are generally a better investment than units. That’s because houses come with land and land is what appreciates, while physical buildings depreciate from the moment they are finished.

Investors in these locations should be looking for, where possible, new builds. Newly built homes offer better tax depreciation benefits, are usually easier to rent or a higher rent than existing properties and have lower maintenance costs.

I’ve pulled together a list of recommended locations for mum and dad investors to consider. They’re surrounded by multiple job hubs and have good existing and future-planned infrastructure.

If there is one piece of advice I’d impart, it is that investors shouldn’t be put off too much by the median house price of a location when doing their research.

2025’s (relatively) affordable hotspots

SOUTHEAST QUEENSLAND

Ripley and Ripley South are our top picks. Ripley’s population is tipped to grow substantially in the next decade and there is plenty of infrastructure being built there.

It is a State Government Priority Development Area, with the State Government announcing in August it would commit $21 million to help unlock more land in the area, by providing money for road infrastructure.

Deebing Heights is forecast to grow 9.2 per cent in the next 25 years. The suburb has access to two motorways and there is a proposed 25km rail extension from Ipswich to Springfield in the works.”

It also has a school, two university campuses and three hospitals, which gives it attraction long-term.

Rosewood is another growth suburb that boasts transport infrastructure, good healthcare and education appeal and affordable median house prices that offer good rental returns.

WESTERN AUSTRALIA

The state capital has some great affordable investment opportunities for newcomers to the market.

Yanchep is our top pick in the West, not only because it has a compounding population growth projection of 12.2 per cent over the next decade, but it also has had a new train line open this year and healthcare and educational infrastructure is good.

Eglinton and Alkimos, which are both in Wanneroo, each have a projected population growth of 10 per cent in the next 10 years and boast four employment clusters – Butler, Joondalup, Mindarie Marina and Perth city.

Bertram within the City of Kwinana has plenty going for it. It’s a 15-minute drive to Rockingham Bach and is close to Garden Island, which houses the Navy base, HMAS Stirling, where more than 3,000 people work.

That makes it an ideal location for investment, with demand from Naval personnel to rent in nearby suburbs.

Mandurah is also a good option. It is part of the Peel Region which will benefit from the Transform Peel Program, a 35-year project aimed at creating new industries and jobs in the region. It aims to generate 33,000 new jobs by 2050 and is expected to inject $16 billion into the WA economy.

VICTORIA

Tarneit is the best option for new homebuyers in Victoria. With a population growth forecast at 18.1 per cent, the outer Melbourne suburb is conveniently located near the Western Freeway and Tarneit railway station.

It has about 1,500 job opportunities and for families has a school catchment with five schools and the main health service is Tarneit Family Medical Centre.

The Melton suburbs of Fraser Rise and Rockbank are up there with the best areas for investors too. Each has freeway access, and a thriving job market and five schools between them.

Rental yields in the suburbs we recommend are between 4 per cent and 4.4 per cent.

SOUTH AUSTRALIA

Virginia is the top pick for investors in South Australia. There are two schools in the area as well as major transport routes, including the Northern Expressway connecting residents to Adelaide and the surrounding areas.

Munno Para West is in the City of Playford in the northern suburbs of Adelaide. It has an extremely affordable median house price. The area is tipped to grow substantially in the coming years. It is close to the RAAF Base in Edinburgh which is home to 3500 Army and Airforce personnel.

It has access to schools and health facilities and is conveniently situated near the Elizabeth City Centre precinct.

Population forecasts suggest Virginia and Munno Para West will grow 17.1 per cent and 13.5 per cent in the next decade, respectively, which will go a long way to ensuring there is a need for housing.

NEW SOUTH WALES

Austral and West Hoxton are top of our list in NSW, each is expected to grow 8.5 per cent in the next decade and there are nine schools in each and access to Liverpool hospital.

Further to this, we like The Hills district, which is home to Castle Hill, Kellyville, North Kellyville, Rouse Hill and Box Hill.

The Hills district has benefited significantly from the New South Wales Government’s investing in the metro, adding eight new stations and five upgraded stations in recent years.

It doesn’t hurt that they are serviced by Castle Hill and Paramatta employment clusters. There are rail stations and access to major motorways, and the health infrastructure is great too.

That’s why we advise investors not to be put off a location by median house price, as it does not reflect what everything in a location is selling for.