Experts agree: Don’t expect the drop in home values to last

Home values saw a dip in December, dropping 0.1 per cent. This was the first time Australia saw a decrease since February 2023.

There were a variety of factors at play that caused this slight drop, each contributing to pushing the value of properties down, for the time being.

“The fall in established home pricing is due to a number of factors, rapid increases in interest rate rises have limited buyers’ borrowing ability and lending capacity, effectively capping what they are able to spend,” said Daniel Senia, co-founder of Greenfield Homes.

“Inflation has put downward pressure on disposable income and savings while families struggle to meet their financial commitments. Those that are selling in this market are forced to sell, likely due to increased mortgage repayments with increased interest rates – meaning that they are willing to sell at a loss to let go of the debt. This is a snowballing effect, as selling under value then sets a new precedent and begins devaluing other homes in the street and suburb.”

However, LJ Hooker’s head of research and business intelligence, Mathew Tiller, said that not all areas are performing poorly and it’s the trends of a few pushing down the rest.

“The decline in home values isn’t across the board, some areas are still performing well, while others are starting to cool off. It’s mainly due to more properties hitting the market, giving buyers extra choice, alongside softer buyer demand caused by cost-of-living pressures and high interest rates. Essentially, the market is finding its feet again after a long run of strong price growth,” said Tiller.

What are the impacts?

According to Senia, consumer confidence will see a bump due to reduced prices. Compounded with the expected interest rate cuts, more people should be entering mortgages.

“We have not seen the bottom of the market but consumer confidence needs to return to reboot the industry. This will come by way of one to two successive interest rate cuts, forecast by most major banks to occur in February and May. Not only will confidence return that we have seen the last of interest rate rises for at least the short term, but buying capacity will begin to increase and banks drop their rates. Those waiting to buy and sell will begin to transact, heating the market and we should again see prices stabilise and then increase,” said Senia.

Tiller shared similar sentiments: “Buyers will benefit from more choice and affordability will improve. This is already happening in some cities. Melbourne prices were down 0.7 per cent in December and Sydney saw a 0.6 per cent drop. On the flip side, markets like Perth (up 0.7 per cent), Adelaide (up 0.6 per cent) and Brisbane (up 0.5 per cent) are holding up, showing that conditions vary depending on where you’re looking.”

All in all, we’re probably not at a turning point

Once the dust settles, both Senia and Tiller agreed that once rates are cut, we should expect the market to return to normal.

“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,” said Senia.

“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 increased 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.

“Melbourne is severely under valued at the moment and we are seeing investors return to Victoria to take advantage. All indicators suggest that the fundamentals remain the same; consistent increases in net migration, under supply of new housing, relatively consistent unemployment rates. Borrowing capacity and consumer confidence are the key drivers to the market bouncing back. If we look at long term averages over the past 10 years across all markets, we have had consistent value escalation between 50 per cent and 100 per cent in all markets.”

Tiller agreed, saying that this drop in prices is temporary: “We’re seeing a softening after a long period of growth and it’s likely to remain in place, for a short period, while interest rates remain high. Once the RBA cuts rates and borrowing capacity and mortgage serviceability improves, we’ll likely see demand pick up again, which should put a floor under prices.”

[Related: Home values drop for the first time in nearly 2 years]

Jack Campbell is the editor of Broker Daily. After graduating from the University of Wollongong in 2022, Jack began his journalistic career working on Broker Daily’s sister brand, HR Leader. In August 2023 he was made the news editor and worked alongside some talented journalists writing articles and recording podcasts.

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