The property market in New South Wales in 2025, and Sydney in particular, will hinge largely on what happens next with interest rates.
The Housing Boom and Bust Report 2025 from SQM Research presents a detailed analysis of what could lie ahead of the Australian property market.
For Sydney, the forecast is nuanced, depending on macroeconomic and other factors laid out in the report.
Here’s a breakdown of the four scenarios and their implications for Sydney’s property market:
Scenario 1: Base case
The base case assumes a steady population growth of over 500,000 people nationally in 2025, no new inflationary shocks and a mid-year interest rate cut of between 0.25 and 0.50 percentage points. Under these conditions, Sydney property prices are forecast to decline slightly, between -5% to -1%.
The downward trend in Sydney reflects the current softness in the market and the lingering effects of high interest rates that we’ve seen throughout 2024. But, the anticipated rate cuts in mid-2025 are expected to spur buyer demand, potentially stabilising prices toward the year’s end.
Many economists appear to agree that the Reserve Bank of Australia (RBA) will cut rates soon. Three of the big four banks (ANZ, NAB and Westpac) are forecasting a cut of 0.25 percentage points in May, with the Commonwealth Bank predicting an earlier cut, in February, with all four banks then expecting further cuts throughout 2025.
For buyers, this means there may be a window of opportunity in early 2025 before any growth in demand after the first rate cut.
Scenario 2: No interest rate cuts
In this scenario, population growth remains robust but the RBA does not cut interest rates in 2025. This could intensify price declines in Sydney as affordability challenges continue and borrowing remains expensive.
Property values may fall more sharply compared to the base case, with declines potentially exceeding -4% up to -8%.
Without rate cuts, high borrowing costs would likely suppress buyer activity, prolonging the downturn in Sydney’s market. We may see an increase in distressed listings, particularly in areas with significant oversupply.
For those able to secure financing, distressed listings can present opportunities to acquire properties below market value, but careful due diligence is essential to ensure long-term viability.
Scenario 3: Earlier interest rate cuts
If the RBA cuts interest rates earlier than mid-2025, Sydney’s property market could see a quicker recovery. In this scenario, renewed affordability would attract buyers back into the market sooner, returning upward pressure to prices.
In this scenario, prices could increase between 3% and 7%.
Scenario 4: Slower population growth
A slowdown in population growth would dampen housing demand. This scenario also forecasts no rate cut in 2025, thereby reducing demand further as buyers will remain cautious about affordability. In this scenario, Sydney’s prices decline between 6% and 10%.
Key takeaways for Sydney
Sydney’s market has begun to slow, which will likely continue into 2025. This has been largely caused by affordability concerns, which began after limited supply put upward pressure on prices. Compounded with high interest rates, this has reduced buyer demand.
“For 2025, we are not anticipating much of a change in these current trends,” said SQM Research managing director Louis Christopher.
But, he also noted that an interest rate cut would help. “Once interest rate cuts do occur, we are expecting a speedy bounce in demand for Sydney and Melbourne in particular, which both are still experiencing underlying housing shortage relative to the strong population growth rates.”
Whether you are looking to purchase a home that will help you achieve long-term capital growth, invest in one rental property, or start building a portfolio, Just Imagine Finance can help you secure a mortgage. To discuss your options, contact us on catherine@justimaginefinance.com.au or 0414 673 359.
