A year of adjustment: NSW property market recap for 2024

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First-home buyers have been hit the hardest. As buyers respond to affordability challenges and elevated interest rates, they are turning to the more affordable segments of the market. This, in turn, results in first-home buyers and lower-income households turning to increased household debt levels and family support in order to get a toe-hold in the market.

Across Australia, property values continue to rise. Overall, home values have increased 5.5% over a five-year period, with the combined value of Australian homes surpassing $11 trillion.

The top growth unit markets were in Adelaide, Brisbane and Perth. Property prices in New South Wales grew 9.6% over the last year, with the top performers all located in Sydney’s most affluent areas.

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The Sydney market is one to watch. Rising interest rates have tempered buyer enthusiasm, particularly in Sydney's inner-city and upper-middle-price segments.

However, while the inner-city suburbs have seen a slight cooling, the outer suburbs and regional areas have continued to perform strongly. This trend is likely to continue into 2025 as buyers seek more affordable options and larger homes with outdoor space.

What’s happening in the rental market

2024 continued to be a challenging year for Australia’s rental market.

Supply issues coupled with the decline in housing affordability has led to increased competition for available properties, driving up rental costs.

Currently, “a record high 33% of income is needed for the median income household to service the median rent”, according to the ANZ CoreLogic Housing Affordability report.[4] Some Australians are spending up to three-quarters of their pay on rent.

Although Australia’s rent values remained high in 2024, the national rental index experienced a flat run of growth, experiencing its smallest annual change since April 2021.

“Annual growth in rent values slowed to 5.3% in the year to November, down from 8.1% in the year prior and a high of 9.6% in the year to September 2022”, according to CoreLogic.[5]

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Sydney’s rental markets continue to be challenging. A combination of increased demand, high rent prices, low vacancy rates and a growing population will continue to cause problems for renters going into 2025.

Overall, the 2024 slowdown in rent growth is predicted to continue into 2025, and there are indications the rental boom might have reached its peak, which will be welcome news for renters.

However, experts caution that it will take a long time for any price decreases to flow down to renters, providing noticeable relief. In the meantime, rental demand and high cost of living constraints will continue to create pressure for many households.

Supply issues continue to have an impact

An undersupply of quality properties relative to demand is increasing property values and rental costs.

The Australian Government’s National Housing Accord set an ambitious target to build 1.2 million new homes over the next five years, beginning in July 2024. However, it is looking unlikely that targets are going to be met within the planned timeframe.

In addition to a lack of new houses, owners of quality properties are holding onto them for longer.

It is likely supply issues are going to be a serious issue into 2025 and for the foreseeable future, affecting both home ownership and rentals.

Geopolitical influences and foreign investment

The global geopolitical landscape of 2024 contributed to increased living costs and consumer concern.

Most of the countries that are regular investors in the Australian property market remained so – for example, the United States, Hong Kong and Singapore.

Japan increased its investments in the Australian property market this year, while Chinese investment dropped.

Australia’s increased taxation on foreign buyers, combined with the country taking a more cautious approach to foreign ownership, has resulted in Chinese investors backing away from the market.

According to Foreign Investment Review Board data, “offshore buyers spent $6.6bn on Aussie homes in the past financial year. But the figure is $1.3bn below the $7.9bn in capital that poured into the nation in the prior year, with $800m of that fall caused by reduced sales to China-based investors.” [7]

The result of Chinese investors’ cooling enthusiasm for the Australian property market might slow new developments, resulting in tighter rental markets.

However, the reduced competition from overseas buyers might result in opportunities for local investors for first-home buyers to enter the market.

Interest rates holding steady – for now

The Reserve Bank of Australia (RBA) has maintained the cash rate at 4.35% since August. This stability has provided some relief for borrowers, who have weathered 12 rate hikes since May 2022.

The RBA has three meetings scheduled for the first half of next year, with decisions announced on 18 February, 1 April and 20 May.

Most major banks are predicting the first rate cut will occur in May 2025, which means the cash rate is expected to settle at 3.85% instead of 4.10% by the end of 2025.

However, the recent, once-in-a-generation announcement of new appointments to the Reserve Bank boards could affect the timing of the next interest rate cut.

The outlook for 2025

There are five key trends shaping the 2025 market.

Housing affordability

Stubbornly high interest rates and property prices will continue to challenge first-home buyers.

Government schemes (such as the NSW First Home Buyer Deposit Scheme and the Help to Buy scheme) will provide some relief, but affordability will remain a significant hurdle.

The regional boom

The trend towards regional living and suburban sprawl is expected to persist. While there is softness in the current market, areas like the Central Coast, Southern Highlands, and The Illawarra are likely to see continued growth as buyers seek more affordable housing and a better lifestyle.

Hybrid working

The flexibility of remote work continues to influence housing preferences. Buyers are seeking properties that can accommodate home offices and provide a good work-life balance.

Sustainable housing

The demand for environmentally friendly and energy-efficient homes is increasing. This trend is particularly evident in new developments and renovations.

Investor activity

Investor activity has been subdued in recent times, but this might pick up as interest rates stabilise and rental yields improve.

In summary

Along with these five trends, the 2025 market is likely to be impacted by interest rate hikes or cuts, rates of inflation, consumer confidence and employment. Government policies such as tax incentives and infrastructure investments are also likely to play an influential role.

Outside of Australia, international trade (and tariffs), ongoing conflicts and economic downturns can slow domestic economic growth, affecting property values and demand.

Conversely, if key trading partners experience strong economic growth, this can boost investor confidence and demand for Australian property.

A final word from Dean Mackie, CEO of DiJones

“While the overall market is expected to soften slightly, the NSW property market is still relatively strong.

“In 2025, the NSW market is likely to be characterised by a more balanced approach. While the rapid price growth of recent years may not continue, thanks to underlying fundamentals and a growing population, the market is expected to remain resilient.

“That said, to achieve the best results in the current market, sellers need to invest in a sophisticated and targeted sales and marketing campaign, and engage an agent with best-in-market digital tools to maximise buyer reach.” Dean Mackie, CEO of DiJones

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