PropTrack Home Price Index - February 2025 Update

PropTrack Home Price Index - February 2025 Update

Home prices reached new record highs in February following a cut to the official interest rate by the Reserve Bank.

As interest rates declined, national home prices experienced a rebound in February, increasing by 0.40% to set a new milestone and recovering from a sluggish start to the year.

This surge not only countered the slight price declines observed in recent months but also positioned national prices at 3.94% higher than they were a year ago.

Key Findings from the February 2025 Report:

• National home prices increased by 0.40% in February, reaching a new all-time high. This recovery has reversed the mild price declines observed in previous months, bringing national prices to 3.94% higher than they were a year ago.

• Capital cities, which had previously led the slight declines, are now at the forefront of the price rebound, showing a 0.45% increase in February. In comparison, regional areas experienced a 0.28% rise during the same period. Both capital cities and regional regions are currently at record-high price levels.

• Melbourne (+0.67%) and Sydney (+0.50%) spearheaded the price increases in February, while Hobart (-0.03%) was the only capital city to experience a decline. Notably, Melbourne recorded gains in both houses and units for the first time since February 2020 for houses and September 2020 for units.

• Alongside Darwin, Melbourne and Sydney have seen the fastest home price growth in the past quarter. Conversely, Adelaide, Hobart, and Perth have experienced the most significant slowdown in price growth.

• In Perth, Adelaide, and Brisbane, growth has decelerated in recent months. However, they continue to be the top-performing capital cities over the past year, with price increases of 13.12%, 11.91%, and 10.21%, respectively.

• While capital cities have led the price recovery, annual growth in regional areas (+4.54%) has surpassed that of capital cities (+3.70%). Challenges with affordability and an increase in options during spring have moderated price growth in the capitals.

Australian Home Price Growth: Annual Insights from the PropTrack Home Price Index

Home Prices Reach Record Highs as Interest Rates Decline in February

In February, national home prices rebounded to record levels as interest rates decreased, reversing the sluggish start to the year.

Market sentiment has notably improved following the decline in interest rates. The anticipation of rate cuts had already lifted confidence, with auction clearance rates strengthening across all capital cities in early February compared to the latter months of 2024.

The recent rate cut has enabled greater borrowing capacities, and enhanced affordability, coupled with renewed buyer confidence, has spurred demand and price growth, effectively counteracting the declines of previous months. While the single 25 basis point rate cut might only translate to a 2-3% increase in borrowing capacity for the average person (with the exact impact varying based on individual financial situations such as income, existing debt, and loan terms), the influence of sentiment cannot be overlooked. Consumer spending decisions are significantly affected by overall confidence and outlook.

Additionally, the modest improvement in affordability and expectations of future price appreciation have further bolstered buyer confidence. This is evidenced by a notable rise in auction clearance rates following the Reserve Bank's decision to initiate interest rate cuts.

Capital Cities Drive Price Rebound

In February, capital cities spearheaded the recovery in property prices. However, annual price growth in regional areas (+4.54%) exceeded that of the capital cities (+3.70%) as affordability challenges and an increase in housing options during the spring season tempered price appreciation in the capitals throughout 2024.

After experiencing minor declines in recent months, capital cities rebounded with a 0.45% increase in February. Meanwhile, regional areas saw a more modest rise of 0.28% during the same period.

Both capital cities and regional areas are currently achieving record-high prices, reflecting a robust market environment.

House and Unit Prices Increase in February

In February, national house prices saw an increase of 0.39%, while unit prices rose by 0.44%.

Over the past year, national house prices have grown by 4.01%, slightly outpacing the growth in unit values, which increased by 3.59%. Since the onset of the pandemic, house values have surged by 52%, compared to a more modest 26% increase for units.

Shifts in Property Values Post-Pandemic: A Comparative Analysis

Since the pandemic began, there has been a significant revaluation of space that has favored house values. Coupled with affordability pressures and a renewed interest in city living, this has resulted in price growth across various property types that has been relatively consistent at the national level over the past two years.

However, trends differ among the capital cities. In Sydney, house price growth at 2.98% has outpaced unit price growth, which stands at 1.50%. Conversely, in Brisbane, unit prices have surged by 13.79%, compared to a 9.57% increase in house prices during the same timeframe.

Strong Market Growth in Queensland, South Australia, and Western Australia

Markets in Queensland, South Australia, and Western Australia continue to experience robust growth. Although interest rates have decreased this month, they have remained elevated for much of the past year. Concurrently, home prices have surged significantly in recent years, while growth in household incomes has not kept pace with these increases. As a result, affordability has worsened considerably.

Across the capital cities, more affordable regions have outperformed the market over the past year. This trend is largely driven by heightened demand for homebuying in these areas, as buyers look to explore more affordable options. Regions such as Adelaide’s north, Ipswich, and Perth’s northwest and south have witnessed rapid price increases due to this shift in buyer preference.

Market Update: February Highlights from the Reserve Bank and Property Trends

This month, the Reserve Bank lowered the cash rate by 25 basis points to 4.10%, leading to an improvement in market sentiment as interest rates begin to decline. This change boosts borrowing capacities and enhances buyers’ purchasing power.

Following Darwin, both Melbourne and Sydney have experienced the fastest growth in home prices over the past quarter, while Adelaide, Hobart, and Perth have seen a notable slowdown.

Despite a general slowdown in growth over the past year, Perth stands out as the top-performing capital for annual home price appreciation, boasting a remarkable increase of 13.12%. This growth can be attributed to the comparative affordability of homes in the city, strong population growth, and a limited supply of new housing, all contributing to sustained price increases in recent years.

Outlook

The recent interest rate cut has not only improved borrowing capacities but also enhanced affordability and buyer confidence, leading to renewed demand and price growth, effectively reversing the downturn seen in recent months.

Beyond interest rates, several structural factors continue to influence home prices. While population growth remains high, it has started to moderate. Additionally, building activity faces challenges even as completion rates rise and building approvals stabilize, resulting in a persistent housing shortage.

Looking ahead, home prices are expected to continue rising, with further declines in interest rates projected. However, this cycle of rate cuts is likely to be modest, and the existing affordability challenges are expected to temper price increases compared to previous easing cycles. As a result, the pace of home price growth may lag behind the strong performance seen in recent years.

The PropTrack Home Price Index measures monthly changes in residential property prices across Australia, providing insights into market performance and trends. It employs a hybrid methodology that combines repeat sales with hedonic regression. The repeat sales method tracks resales of the same property, while hedonic regression estimates values based on similar properties. This combination allows for accurate matching of properties within the same Australian Bureau of Statistics Statistical Area 1 (SA1) region, controlling for differences in property characteristics. The PropTrack Home Price Index is regularly updated, with the entire historical dataset revised monthly to incorporate current transaction information.

Conclusion

As we wrap up our discussion on the current property market trends and the implications of recent interest rate changes, it’s clear that navigating the home buying process can be both exciting and challenging. At Loans AU, we are committed to helping you make informed decisions as you embark on your journey towards homeownership or investment.

With the right financial strategies and guidance, you can take advantage of favorable market conditions, boost your purchasing power, and find the perfect loan solution that aligns with your goals. Whether you're a first-time buyer or looking to refinance, our team of experienced professionals is here to support you every step of the way.

If you have any questions or need assistance with your home loan options, please don’t hesitate to reach out. You can contact us directly at Loans AU for personalized advice tailored to your unique needs. 

Thank you for reading, and we look forward to helping you achieve your financial dreams!

Be sure to subscribe to our channel for more insights and updates on the property market, and don’t forget to follow us on social media for valuable tips and resources.

Stay informed, stay empowered with Loans AU!