A new forecast predicts Sydney’s housing market will see modest growth through 2025, reflecting concerns over affordability and supply.
According to KPMG, house prices are set to grow by only 3.3% across Australia this year, with Sydney following closely behind. This growth, primarily driven by both local and foreign investors, still appears sluggish and insufficient to alleviate the affordability crisis currently plaguing the market.
Dr. Brendan Rynne, chief economist at KPMG, conveyed his pessimistic outlook, stating, "It's important to recognize the sluggish growth dynamics. Notably, units could see higher growth at about 4.6%, as buyers turn to more affordable options amid high-interest rates." His analysis indicates decreased lending capacity has kept many buyers on the sidelines, waiting for economic conditions to improve.
Although Sydney’s overall house prices are projected to rise gradually, the gradual pace has experts worried. Rynne pointed out, "We continue to see many housing markets struggling, both with slow growth rates and even declines. This has become the notable trend as we enter 2025." The KPMG forecast detailed predictions for various Australian cities: Melbourne's prices are expected to increase by 3.5%, Brisbane’s by 3.1%, and Perth showing the highest increase at 4%.
Indeed, the entire market is feeling the pinch. The high mortgage costs and stringent lending conditions, including a 3% lending buffer, have significantly reduced the number of borrowers eligible for home loans, drastically changing the dynamics of buyer participation.
While some analysts believe the situation could improve slightly with expected rate cuts, others are skeptical about how much relief those cuts will bring. Madeline Dunk, economist at ANZ, remarked, "We’re only expecting two rate cuts. It won’t markedly shift the market dynamics as much as some hope."
With home prices remaining critically high, financial analysts express concerns. "Even with generous reductions on paper, price hikes have put many homes out of reach even during potential rate cuts," cautioned Rynne. The perspective here emphasizes how, regardless of anticipated economic relief, house affordability remains deeply problematic.
Independent economist Besa Deda echoed these sentiments, stating, "Affordability weighs heavily on the market long-term. A short-term improvement doesn't solve the larger issues embedded within housing supply deficits."
Additionally, predictions for unit prices reveal they may continue to lead the recovery due to lower entry points, fostering increased investor interest. With Sydney units expected to appreciate by 5%, the disparity between housing and units signifies shifting consumer preferences influenced by financial constraints.
Experts agree the major underlying issue remains unchanged: insufficient housing supply. Dr. Rynne emphasized this, asserting the need for increased housing development has become ever more pronounced. "Housing is the No.1 policy problem in this country," he stated, inferring deep structural change is necessary to move the market forward.
The trend of changing demographic preferences for housing is also notable. Planning Minister Paul Scully’s statement to prioritize diverse housing options indicates governmental awareness. Enhanced zoning reforms aim to adjust standards to incorporate more three- or four-bedroom apartments, reflecting changing family needs and enabling greater access to housing.
Each housing market across Australia is unique, shaped by local demand, wage growth, and infrastructural development. Listening to various forecasts, we find competitive forces pressuring major cities distinctively, particularly Sydney and Melbourne. Sydney, with long-term growth rates proving resilient over decades, will need adaptation to weather future economic shifts.
For prospective buyers, the glimmers of hope concerning rate cuts will likely provide relief but fall short of rectifying the complex dynamics of housing prices. Overall, Sydney's housing market for 2025 indicates limited growth combined with persistent affordability concerns, posing challenges for future homebuyers awaiting significant shifts.
The future of housing, particularly within high-demand cities like Sydney and Melbourne, remains uncertain, but what seems clear is the continuous struggle between rising prices, restricted lending capacity, and the government's efforts to create more family-friendly housing developments.