Why house prices aren’t coming down

In 2024, the two opposing forces – constrained supply and high interest rates – appear to have cancelled each other out, and house prices have stabilised.


The CoreLogic data set for January on price movements shows particular capital cities and regions have performed differently, but the combined national market is ahead 0.4 per cent again, having moved up 0.3 per cent in December.

Sydney prices grew 0.2 per cent, while Melbourne values fell a very modest 0.1 per cent in January.

Economists who had previously been bearish on property prices are now having to restate projections and introduce the possibility or even likelihood that prices will go up again this year.

Most are expecting to see an interest rate reprieve hit Australians in the second half of the year.

And as inflation falls and wages begin to catch up, the cost-of-living crisis will begin to ease – all of which will serve to push property prices higher.

The stage 3 tax cuts will also provide some help to affordability.

AMP’s chief economist Shane Oliver says we should expect a renewed upswing in house prices from later this year in response to lower mortgage rates. “Falling inflation adds to confidence that rates will be falling from mid-year,” he says.

But he sits in the forecasters’ camp that also sees downside risks to prices.


“The big negative influence on the property market remains poor affordability and high mortgage stress,” Oliver says. “For years, property prices were supported by ever lower interest rates, but due to the rebound in interest rates from May 2022 and high home-price-to-income ratios, there is now a wide divergence between buyers’ capacity to pay for a property and current home prices – which we estimate to be around 28 per cent.”

Both NAB and Commonwealth Bank economists are forecasting residential property prices to rise 5 per cent this year.

“The demand/supply imbalance is likely to remain a key support in the short term, while expected rate cuts in late 2024 will provide additional support in 2025,” NAB’s chief economist Alan Oster says.

But as any economist would tell you, employment holds the key to house prices. While it remains strong and people can afford to continue paying their mortgage, the property market is fortified.

If there is a marked increase in unemployment, all bets are off.

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