Rents and prices ease in Q4
Housing values recorded their first decline in two years, falling slightly by -0.1 per cent over the month of December 2024.
Over the fourth quarter, Melbourne prices fell by -1.8 per cent, accounting for most of the decline, while the more expensive houses in Sydney drove a decline for the harbour city of -1.4 per cent in the final quarter of the year (albeit, Sydney overall still finished the year in positive territory).
The most affordable quartile of the market recorded the highest price growth over the year (and the most expensive quartile was the worst performer).
The other capital cities to record a fall in prices in 2024, aside from Melbourne, were Canberra and Hobart.
Perth, Adelaide, and Brisbane, on the other hand, notched double-digit percentage gains.
The housing basket has been one of the key drivers of consumer price inflation over the past year or two, but it looks like rents have now levelled off completely, as household sizes increase to combat expensive rental markets.
There has also been some evidence to suggest that new home price inflation has moderated.
Overall, inflation for the December 2024 quarter looks set to come in at around just 0.2 per cent - partly due to government subsidies - suggesting that interest rates may be cut at the first sign of a deterioration in the jobs market.
Some commentators and economists this week have highlighted the lower Aussie dollar as a reason to keep interest rates on hold, though markets are leaning towards a possible cut as soon as February 18 (with a cut fully priced in by May 2025).
The Aussie dollar is trading at 62.13 cents versus the US dollar, well down from recent highs, but for now is still broadly within a similar trading range to what's been seen over the past 2½ years.
In part the lower dollar itself reflects the expectation of lower interest rates in Australia - so to some extent it's a cause and effect thing - but the move lower is also reflective of recent policy shifts in the US, and a sharp slowdown in China's economy.
Construction cost inflation to ease
Profit margins for construction firms are currently running at very low levels of around just 2 to 3 per cent, while the sector is accounting for over ¼ of all insolvencies.
With little incentive to commence new apartment projects, and with softening government demand for infrastructure projects, construction cost inflation is expected to ease in 2025.
Project forecasts by Altus Group suggest that construction cost inflation, which ran very high in 2023 and 2024, should gradually ease in 2025 and beyond:
Enterprise bargaining agreements mean that wages growth in the construction sector is likely to remain relatively elevated until at least 2028.
Queensland is still likely to see a high level of demand for new housing and through the lead-up to the 2032 Olympics, so cost pressures may remain intense in the Sunshine State.
High construction costs mean that housing shortages are expected to persist in 2025, noted CoreLogic.
