HOME OPEN: It’s red-hot in Perth, chilly in Melbourne

Australia’s major city property markets are seeing a growing divergence in performance, according to Westpac’s latest Housing Pulse report, with Perth setting a blistering pace for price gains. 

The Western Australia capital is on track for a rise close to 20 per cent this year, adding to strong gains in 2023 which broke a period of almost a decade where housing prices basically went sideways.

The Perth median price has surpassed Melbourne's for the first time since 2014, driven by an extremely tight supply backdrop in terms of properties listed for sale and rental vacancies. 

While there are no signs yet of an imminent slowing, this rollicking pace is clearly not sustainable. That long period of minimal price growth has helped to prolong the upturn, but any affordability advantage coming into the cycle now looks to have been largely exhausted.

It's a similar story in Adelaide, but the cycle looks to be a little more advanced there. Price growth in the South Australia capital has moderated to a still-healthy 15 per cent on an annual basis, and Adelaide’s median dwelling price surpassed Melbourne's for the first time ever over the last couple of months.

We’re seeing signs that the price gains are starting to deter buyers, even though price expectations kicked up over the last three months. 

In contrast, the market in Victoria is the softest we’re seeing nationally at the moment. Prices in Melbourne have eased by 1 per cent over the past year with the top-end of the market in particular looking soft.

There remains an overhang of supply in Melbourne after tax policy changes last year sparked an increase in listings. That surge in listings is being slowly absorbed and, while it's not a threatening situation, the overhang will take time to unwind. 

We expect prices to be broadly flat in Melbourne for the year, and it might take the RBA to start cutting interest rates next year before things begin to pick up. 

It’s also a varied picture in the eastern coast states. The Brisbane market, like Perth and Adelaide, is seeing strong price growth - comfortably above 10 per cent annually - although there are signs that pricing is starting to get a little stretched. 

A dip in turnover is perhaps an indication that affordability challenges are starting to bite.

In Sydney, price gains are tracking at a much slower pace overall - in the 0 to 5 per cent range for price growth. Turnover is also quite soft.

It's not quite the situation we're seeing in Melbourne. but it's clear that affordability issues are impacting the market more than in Perth, Adelaide and Brisbane.  

Looking ahead, we think that over the next 12-18 months the major cities will start to re-converge as the boom markets run into affordability constraints. When the RBA does start cutting rates – Westpac economists expect the first easing in February - that should support the broader market with price gains of 3-4 per cent seen across the board in 2025. 

To read the Housing Pulse report in full, visit WestpacIQ.