Sydney and Melbourne House Prices Rebound in 2024

After modest dips early in the year, home values in Australia’s two biggest cities have started climbing once more. Sydney prices edged up 0.7% while Melbourne gained 0.9% since February, coinciding with the central bank’s first rate cut of the year. The property market's sharp reaction shows just how sensitive housing demand is to interest rate movements - especially when the nation is still grappling with slow new housing supply.

Property analysts suggest more rate cuts could be on the horizon, with markets pricing in a 60% chance of another cut in May. If predictions come true, Australia's cash rate could fall to 3.5% by year’s end, down from the 4.35% peak in late 2023. This would bring the average discounted variable mortgage rate from 6.3% down to around 5.45%, giving buyers some much-needed relief after years of tightening conditions.

Housing values had recently cooled slightly after strong post-pandemic growth. Between March 2024 and January 2025, Melbourne’s detached homes dropped 3.8%. Sydney’s losses were more contained at 2.1%. But the February rate cut seems to have flipped sentiment again. Buyers are now focused on cheaper borrowing rather than bracing for further hikes.

Despite past expectations of a prolonged downturn, home prices began recovering as early as 2023, especially in Sydney, where values bounced 18.3% from the bottom. Melbourne’s gains were slower at just 5.9%, possibly due to more restrictive state-level policies. The real surprise for some economists, however, was how strongly population growth, fuelled by high immigration, spurred housing demand despite persistent challenges for builders and developers.

Looking ahead, the pace of recovery depends largely on the Reserve Bank's policy stance. Monetary easing in 2025 could strengthen the current upswing in prices, helping cushion the construction sector, which has suffered under rising costs and weak buyer demand. Inflation data suggests the RBA still has room to cut further without stoking inflation, especially with official figures showing core inflation tracking inside the central bank's target range.

But broader structural forces are at play. Public sector hiring, dominated by health, education and administration, has accounted for most recent jobs growth. Meanwhile, government spending remains at historic highs, which analysts argue is keeping unemployment artificially low, adding inflationary pressure. Without fiscal tightening, interest rates might have been slashed more substantially by now.

State governments, in particular, are under scrutiny for ramping up debt to meet growing expenditure promises. While international figures focus on slashing public spending to relieve pressure on inflation and free up room for private investment, Australian policymakers appear less inclined to follow suit - potentially keeping rates and home affordability in a delicate balance.

Source: The Australian, Domain, Real Estate, Statista