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The listings portal has unveiled its top predictions for the Australian property market in 2025, highlighting the trends set to redefine real estate.
From interest rate cuts to housing reforms and sustainability, several critical shifts are on the horizon, according to property listings platform Domain.
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According to Domain’s 2024 End of Year Wrap report, as buyers navigate affordability challenges, policymakers face mounting pressure to address housing shortages and stimulate construction. Meanwhile, changing demographics and eco-conscious values will reshape housing preferences.
As such, it suggests that the following trends may emerge in 2025:
1. Interest rate cuts to spur market activity
Affordability challenges and borrowing limitations have restricted home buyer activity. However, potential cash rate cuts or stimulus measures in 2025 could reignite buyer interest, boosting property prices. Economists suggest even one or two rate cuts might be enough to revive demand. The market could experience a two-speed year, with a subdued first half followed by a dynamic second half, depending on the timing of these cuts. Additionally, reducing the mortgage serviceability buffer could unlock greater borrowing power, speeding up home ownership for many Australians.
2. Housing to take centre stage in federal election
Australia’s housing shortage is set to dominate the federal election agenda in 2025. Key policy proposals may include first home buyer incentives, negative gearing reforms, and replacing stamp duty with land tax. To ease supply constraints, increased housing construction and streamlined planning processes will be critical. However, bold policy changes require significant political will and a long-term vision to ensure lasting impact.
3. Embracing urban density for the future
As Sydney, Melbourne, and Brisbane grapple with rising populations, urban density will become essential. In 2025, expect a surge in town houses and smaller apartment complexes, particularly in middle-ring suburbs. Multigenerational living and co-living arrangements are also gaining traction, reflecting shifting family dynamics and the need for more adaptable housing options. These trends will redefine what home ownership looks like in Australia’s growing cities.
4. Sustainability: A non-negotiable investment
Eco-friendly homes will remain a top priority for buyers in 2025. Features like solar panels, energy-efficient systems, and advanced insulation will be essential. Government incentives for sustainable upgrades will encourage more eco-conscious home improvements. With energy prices fluctuating, homes offering energy independence through solar power, battery storage, and rainwater harvesting will command a resale premium. Sustainability isn’t just a trend – it’s a profitable investment in the future.
What will influence prices?
The report also flagged the drivers that may increase or decrease house prices this year.
According to the report, the upward price drivers are as follows:
Housing shortfall: Low building approvals threaten government plans to address the housing crisis, hampered by high population growth, high construction costs, labour shortages, planning delays, and high interest rates, which are hindering new housing projects.
Rate-cutting cycle in 2025: Anticipated rate cuts will make borrowing cheaper, increasing buyer activity and driving prices up.
APRA changes: A potential reduction in the mortgage serviceability buffer (from 3 per cent) will further boost borrowing capacity, intensifying demand.
FOMO & increased buyer activity: Urgency from buyers, especially in constrained markets, could further heighten demand and push prices upward.
However, it also outlined that several downward drivers could also manifest this year, including:
Global & domestic uncertainty: Geopolitical tensions and concerns over a potential global recession could dampen buyer confidence, delaying major financial decisions like property purchases, while reduced consumer spending and subdued business investment could lead to a more cautious market, further weakening housing demand.
Stretched affordability: Escalating home prices and higher interest rates continue to strain affordability, particularly in urban areas. Meanwhile, wage growth has not kept pace with rising home prices, limiting buyers’ purchasing power and thereby preventing many buyers from entering the market. (However, buyers may adapt by opting for more affordable housing options like town houses or apartments or relocating to less expensive suburbs).
Delayed cash rate cuts: The RBA is cautious about rate cuts, with forecasts for a decrease pushed back due to persistent inflation and a strong jobs market. Unlike other countries, Australia may not see a rate cut until mid-2025 or later, prolonging downward pressure on prices.
[Related: Home values drop for first time in nearly 2 years]
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