House prices are falling in Sydney and Melbourne

House prices are now falling on a monthly basis in Sydney and Melbourne, offering a strong signal that 2025 will open weaker for residential markets.

With the two cities representing around 60 per cent of nationwide housing stock, the ongoing monthly declines are significant – though still marginal in percentage terms: Both cities dropped by 0.2 per cent over the last month according to CoreLogic.

Inside the property market, analysts are already using the monthly data to forecast falls for the two biggest cities in 2025, ranging between declines of 1 per cent and 5 per cent.

Meanwhile, the rest of the nation is still experiencing price gains, though there are early signs of weakness for Canberra and Hobart. Estimates for the nationwide average outcome range from growth of 1 to 4 per cent.

Overall, Melbourne is now negative for the year at minus 1.9 per cent while Sydney is still up 3 per cent.

The nationwide average outcome is up 5.4 per cent – driven by 10 per centplus gains in Perth, Brisbane and Adelaide.

The issue for home buyers and investors is whether the softer conditions persist in metropolitan markets.

Certainly the trigger for a market rebound – an interest rate cut – has not materialised and now bank economists at both NAB and Westpac have pushed out their timetable for a reduction to May next year after calling it initially for February.

Three key negative signals persist across the market.

• Clearance rates are poor and declining on a trend basis across the year – though auction clearance rates are far from perfect they do offer a big picture pattern and just now the pattern is weak with a national average of 65 per cent.

• Volumes are mounting – the sheer amount of stock for sale in the larger cities continues to build – in turn this shifts the power from sellers to buyers.

• Withdrawal and pre-auction sales: A sure sign of faltering investing confidence is sellers accepting bids prior to auction to avoid the risk of a dead auction where the house never gets the reserve set by the vendor.

Pre-auctions sales are running higher than average, especially in Sydney.

Louis Christopher of SQM Research was one of the few analysts to suggest Sydney prices would see falls in 2024. He now says the city will also have a soft start to next year: “I think we will be looking at a V-shaped recovery mid next year, but for the next few months with the accumulation of housing stock in the market we do not expect a turn.’

SQM is also expecting rates will move mid next year: “We have scenarios where they can move in any direction – but the market is waiting for a cut around May,” he suggests.

Interstate investors are expected to move into the weaker markets, particularly Melbourne.

Melbourne prices are now lower in relative terms than the rest of the nation. The median dwelling value in Melbourne is at its most affordable relative to Sydney in nearly 20 years.

Separately, Melbourne prices have now dropped below the median price of Brisbane, Perth and Adelaide.

This article first appeared in The Australian.