After a good few years of solid value growth and activity, the Adelaide property market stands at a critical juncture. Rising interest rates and cost-of-living pressures will likely slow price growth in the months ahead. Real estate agents are reporting that the delta between vendor expectations and the price the market is willing to pay, is widening. Years of price hikes have stretched budgets, and that could dampen demand.

Having said that, Adelaide remains affordable compared with other states and is still an attractive option for investors and relocators so rather than a drop in values, it’s more likely we’ll just see a bit of a flattening and market stabilisation. That’s certainly been our experience in the past – we’ve noted previously that in SA, we don’t tend to see wild fluctuations but gentler softening and relatively paced increases in values. In fact, recent data released by Core Logic shows that over the past 10 years, the growth in Adelaide dwelling values has been 93.3% which is the highest of all Australian capital cities over the same period.

Since the onset of COVID, Adelaide values have grown 72.1%, eclipsed only by Perth at 77%. This indicates that over the mid to longer term, Adelaide is a solid investment. Adelaide’s property market has a track record of resilience. While 2025 may bring adjustments, staying informed and flexible will help buyers and sellers navigate changes and seize opportunities.

Overview:

What to expect in SA in 2025?

  • Moderation Over Meltdown: Price growth may ease, particularly in affordability-challenged segments, but a sharp downturn is unlikely.
  • Selective Opportunities: Inner-city and coastal areas with strong rental yields will remain attractive.
  • Opportunities for Buyers: First-home buyers and upgraders might find openings as the market cools. No doubt, this will be a relief for many.

Over the quarter to end 2024, four out of the eight capital cities experienced a decline in property values. Melbourne led this trend with a -1.8% decrease, followed by Sydney (-1.4%), and Canberra (- 0.3%). Even Brisbane, Adelaide, and Perth which have experienced significant growth over the past year (11.2%, 13.1% and 19.1% respectively), are starting to moderate. Meanwhile, mid-sized capitals and regional areas have helped sustain the national index, though the momentum in these markets is waning. Perth continues to lead in capital gains, recording a 0.7% increase for the month of December, a 1.9% rise over the quarter and as mentioned earlier, 19.1% for the year.

The year’s end revealed a surprising median value ranking: Sydney, Brisbane, Adelaide, Perth, Melbourne, and Hobart, in that order. It’s remarkable to consider that Melbourne’s median home values have now fallen behind those in Brisbane, Adelaide, and Perth.

Regional vs. Capital Trends

Regional housing markets are at their peak in Qld, SA and WA, aligning with the Brisbane, Adelaide and Perth median values which are also at peak levels.  Regional Victoria has dampened overall regional performance over with past 3 months, recording a -8.6% decline from the value peak in May 2022.

Rental Market Insights

Rental growth has flattened nationally, rising just 0.1% in December and 4.8% over the year—the smallest annual increase since March 2021. Despite this, rents are still increasing at more than twice the pre-pandemic average of 2.0%.

Perth remains a standout, with annual rental growth for units at 8.7% and houses at 8.0%. Adelaide’s annual change in rents for units was even higher than that of Perth – increasing by 9.2%.

With housing values and rental growth leveling off, gross rental yields have stabilised at 3.7%. Sydney’s yields remain low at 3.0%, while Darwin’s yields are closer to current investor mortgage rates of approximately 6.7%.

Economic Outlook and Market Predictions

Looking ahead, the housing market faces headwinds, including persistent core inflation, tight labour markets, and diminished expectations for early 2025 interest rate cuts. October’s inflation rate of 2.1% fell within the Reserve Bank of Australia’s (RBA) target range, but core inflation edged up to 3.5%. This indicates ongoing challenges in achieving stable inflation targets.

Labour market conditions remain robust, with unemployment steady in the low 4% range and workforce participation high. While beneficial for most Australians, a strong job market may exert upward pressure on wages and consumer spending, potentially maintaining inflationary pressures.

What will we see in 2025?

Financial markets are generally anticipating rate cuts mid-year, while some major banks foresee reductions between February and May. Lower interest rates could boost borrowing capacity and consumer confidence, but significant housing value increases may require more substantial rate reductions.

As we enter 2025, the housing market in South Australia appears set for a cautious start. As the data is showing, across the country, value growth is slowing or reversing in some states, stock levels are rising, and affordability remains challenging. However, pockets of optimism exist.

Geopolitical uncertainties, including global conflicts and a looming federal election, add complexity to the 2025 outlook. Meanwhile, Australia faces a housing undersupply due to past population growth and construction sector challenges, which may spur policy initiatives to boost housing supply.

The Adelaide property market is at a fascinating crossroads. National forecasts hint at a potential softening in 2025, yet local factors and surging investor activity paint a more complex picture for us to consider. Let’s buckle in for the ride – staying informed will be essential to navigating both opportunities and challenges.

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