Is the property downturn already over?

As 2024 came to an end, there were two clear stories about the property market. First, some sort of correction seemed likely to occur in the near future, given that December was the first month of negative price growth in almost two years. Second, there was a widespread expectation that interest rates would be lower at the end of 2025 than 2024. 

Now the story around property prices looks very different, in part because many people still believe rates are likely to trend down throughout this year.

“Australia’s housing market has staged a remarkable recovery in January 2025, bouncing back to growth after just one month of price declines. This swift reversal could potentially rank among the shortest market downturns on record,” according to Ray White Group Chief Economist Nerida Conisbee.

“The resurgence appears to be driven by several key factors. Most significantly, growing expectations of an interest rate cut have boosted market sentiment. This anticipated monetary easing would increase buyers’ borrowing capacity and reduce mortgage payments for existing homeowners. Market confidence has also been bolstered by these positive rate expectations.

Additionally, a seasonal reduction in new listings, combined with more cautious seller behavior, has created tighter market conditions. Once interest rates do decrease, we could see a rapid shift from the buyers’ market experienced in late 2024 to conditions favoring sellers.”

Constrained supply leading to increased demand

While lower interest rates are likely to stimulate the property market in the short term, Ms Conisbee said “a persistent structural undersupply” would cause prices to keep rising over the long term.

“We appear to be experiencing a fundamental shift in the property market’s dynamics, where traditional cycles of significant ups and downs are being replaced by sustained long-term price growth, interrupted only by brief corrections,” she said.

“The supply constraints facing the market are multifaceted and deeply entrenched. The construction industry is operating at capacity, while decades of undersupply have created a significant construction backlog. This is compounded by a fundamental mismatch between available housing stock and shrinking household sizes. Construction timeframes have permanently extended, and the industry faces workforce challenges with an aging labor pool that isn’t being replenished quickly enough.”

Ms Conisbee added that these structural constraints effectively created a floor for property prices and limited the potential for significant price falls.

How to get ahead of future price rises

Property prices have increased significantly over the past five years and Ms Conisbee’s analysis suggests prices are likely to continue rising in the years ahead.

So if you’re thinking about buying and you have the financial capacity to do so, it might make sense to take action sooner rather than later.