First-home buyers should act now to take advantage of “friendly” market conditions and beat a predicted post-interest rate cut frenzy, which could push home prices up in an oversupplied market, a new report has found.
PRD’s Australian Economic and Property Update revealed a significant rebound in buyer confidence, as the time-to-buy-a-dwelling index surged following the Reserve Bank of Australia’s highly anticipated interest rate cut to 4.1 per cent last month.
The index measured how favourable conditions were for buying a home based on rates, affordability and market sentiment. It was up 24.9 per cent nationally in the year to January to 89.9 points, and improved across all states.
The time-to-buy-a-dwelling index surged in every state as market sentiment improved
Victoria and South Australia recorded the biggest increases at 43 and 32.8 per cent respectively, to 98 and 94.5 points. Queensland, New South Wales and Western Australia also notched considerable gains in the index of 19.3, 19.5 and 13.6 per cent.
PRD Chief Economist Dr Diaswati Mardiasmo said rate cuts could trigger a “frenzy of real estate activity”, as banks also lowered their lending rates, benefiting home buyers, investors, and businesses alike.
“Home buyers will have access to a slightly higher borrowing amount, which will assist with competing in an undersupplied market,” Dr Mardiasmo said.
Melbourne’s market offered new buyers “a real chance”, the report found
But the current window for first-home buyers to act was narrowing.
“The market is shifting slowly but steadily, and first-home buyers need to move quickly to take advantage of more favourable conditions before a potential market frenzy pushes prices higher,” Dr Mardiasmo said.
She singled out Melbourne’s prospects for new buyers.
“The median house price in Melbourne is still on a recovery path, which puts it as a
more affordable capital city in Australia.
“This creates a real chance for first-home buyers to enter the market. Melbourne’s time-to-buy-a-dwelling index has increased the most in the past 12 months to January 2025,” Dr Mardiasmo said.
NSW was another buyer-friendly market
While first-home buyer activity dipped slightly by -1.3 per cent year-on-year, those entering the market were facing higher levels of debt.
Nationally, first-home buyers must now commit to an extra 5.4 per cent in debt, a reflection of rising home prices in many areas, particularly in Queensland, Western Australia, and South Australia.
Only NSW and Victoria’s first-home buyers benefitted from slower market conditions, allowing them to save more than in previous periods.
“NSW is one of the friendliest places for first-home buyers,” Dr Mardiasmo.
She said the number of first-home buyers in the NSW market had dwindled by 9.1 per cent in the 12 months to December 2024, while their level of debt rose by the second smallest amount of 2.9 per cent.
Brisbane prices were still climbing
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Comparatively, first-home buyers in QLD and WA were saddled with an extra 11.7 per cent and 13.9 per cent in debt respectively.
The report found the national housing shortage persisted, with a significant gap between population growth and new residential construction, especially for detached housing.
While new residential work had picked up in the latter half of 2024, housing prices were expected to continue rising as supply struggled to meet demand.
The national housing shortage persisted
The global residential construction slowdown added pressure, as Australia remained one of the few countries to record growth in the sector.
Units remained the dominant stock type in cities across Australia, except for Hobart and Adelaide, as more buyers turned to apartments amid affordability challenges.
PRD’s report found the rate of unit price growth now outpaced house prices in some areas, as house buyers also changed up their preferences due to a lack of available stock.
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