House prices have continued rising across Australia amid a backdrop of interest rate cuts and growing buyer sentiment. According to the latest data from property analytics firm Cotality (formerly CoreLogic), national dwelling values in May posted another month of gains. Industry experts now forecast capital city combined dwelling prices could climb between 6% and 10% by late 2025 or early 2026, driven by cheaper finance, tight housing supply, and government initiatives aimed at first home buyers.
National Price Movements in May
In May 2025, Cotality’s national Home Value Index recorded a 0.5% increase in dwelling values, extending the year-to-date rise to 1.7%. All eight capital cities posted at least a 0.4% lift during the month, indicating a broad-based recovery in demand. While Melbourne and Canberra remain the only capitals showing modest annual declines—down 1.2% and 0.7% respectively—both have been reversing course in recent weeks as buyer activity picks up.
Cotality’s Head of Research, Eliza Owen, noted that May’s price growth follows a short-lived downturn in the first quarter. “House prices are trending higher in May after a minor 0.4% decline over the three months ending January,” she said. “The February rate cut from the Reserve Bank of Australia (RBA) has supported values, and lower borrowing costs are expected to drive further gains.”
Analysts Forecast Further Growth of 6%–10%
Property research firm SQM expects the national rally to accelerate as additional rate cuts are delivered. SQM’s Managing Director, Louis Christopher, forecasts capital city combined dwelling prices to rise between 6% and 10% through early 2026. His projections break down as follows:
- Sydney: +3% to +7%
- Melbourne: +2% to +6%
- Brisbane: +11% to +16%
- Perth: +15% to +20%
- Adelaide: +10% to +14%
- Hobart: +1% to +5%
- Canberra: +2% to +6%
Christopher attributes the expected acceleration to ongoing RBA policy easing, which will lower the cash rate to as low as 3.50% by year’s end. He explained, “We anticipate the RBA to cut the cash target rate by a further 25 basis points at the July board meeting, with the potential for an even larger 50 basis point move if economic indicators—such as GDP growth or employment figures—weaken. Cheaper money, combined with high population growth and a longstanding supply shortage, sets the stage for stronger buyer demand and price growth from as early as Q3 2025.”
Influence of Interest Rate Cuts on Borrowing Capacity
Lower interest rates directly increase household borrowing capacity, enabling buyers to service larger loans and thus bid more aggressively for properties. Cotality’s Eliza Owen emphasized this point: “With two more rate cuts widely anticipated this year, markets should see higher values and increased sales activity. A typical household could gain a 10–15% boost to borrowing power for each 25 basis point reduction, which immediately shifts the maximum purchase price out of reach for some into a more affordable bracket.”
Mortgage broker Gino Farina of Bondi Broker confirmed that rate cuts are already influencing buyer behaviour. “Rate reductions have given prospective buyers renewed confidence,” he said. “First home buyers are particularly active—many are leveraging government programs to secure low-deposit finance. Investors are still in the market, though the returns are tighter given higher entry prices and rental yields that are moderating.”
A household that could previously borrow $800,000 at a 4.5% variable rate might now secure up to $900,000 financing at a 4.0% rate, translating to a possible 5%–10% increase in purchasing power. Farina believes this fuel to demand will continue as long as rates persist at lower levels.
Affordability Constraints and Economic Headwinds
While cheaper credit underpins price growth, analysts warn that affordability remains a significant constraint. The combined capital city median dwelling value now exceeds $1,000,000, placing homeownership out of reach for many. Owen cautioned, “Even with lower rates, a family applying for a loan must still service repayments on a million-dollar mortgage. Rising unemployment, slower wage growth, and softened consumer sentiment may temper housing inflation over the next 6–12 months.”
The Grattan Institute’s recent analysis corroborates this view, finding that despite lower mortgage rates, median mortgage repayments have risen to 40%–45% of average household income in Sydney and Melbourne. Economists argue that any further deterioration in employment or consumer confidence could curtail bidding activity, preventing price gains from surpassing historical norms.
Government Policies and First Home Buyer Support
The Albanese government has introduced a suite of demand-side policies aimed at easing entry to the market for first home buyers. Chief among these is the expanded 5% deposit guarantee, set to commence in early 2026. Under the scheme, eligible first home buyers can purchase a new or existing home with a deposit as low as 5%, without paying lender’s mortgage insurance, provided their household income falls below certain thresholds.
Eliza Owen observed that anticipation of the guarantee is already prompting some first home buyers to enter the market ahead of its launch. “Some buyers are eager to lock in a property now, anticipating that competition will increase once the scheme goes live,” she explained. “As more buyers compete for a limited supply of affordable stock, price pressure will build.”
Other measures include expanded first home owner grants in selected states for new builds, stamp duty waivers, and increased housing subsidies for regional areas. While these incentives target affordability, economists warn they may inadvertently bid up prices in the very segments they intend to support.
Capital City Breakdown
Sydney
After a brief plateau in late 2024, Sydney home values rose 0.4% in May, pushing the annual gain to 2.3%. The combination of rate cuts and robust population growth (1.5% year-on-year) has attracted renewed interest in suburbs previously deemed too expensive. SQM’s Louis Christopher forecasts mid-single digit gains for Sydney in 2025, noting that rental vacancy in the metro area remains below 1.5%, exerting upward pressure on investor demand.
Melbourne
Melbourne recorded a 0.3% rise in May, though annual values remain 1.2% below May 2024 levels. Analysts point to a slight rebalancing between supply and demand this quarter, with suburban housing stock more readily available. However, with new interest rate cuts on the horizon, Melbourne values are likely to re-enter positive territory. Christopher predicts a 2%–6% rise in values by early 2026.
Brisbane
Brisbane led the May gains with a 0.6% lift, extending its year-to-date rise to 3.5%. Strong interstate migration into Queensland, coupled with ongoing infrastructure spending ahead of the 2032 Olympic Games, underpins demand. SQM forecasts an 11%–16% rise in Brisbane values by next year.
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Perth
Perth home values surged 0.8% in May, the strongest monthly gain among capitals, lifting the annual increase to 5.2%. Historically low construction of new dwellings (only 20,000 in FY24 versus a benchmark of 40,000) has left the market undersupplied. Combined with a resources-led rebound in employment, SQM projects Perth values could climb 15%–20% by early 2026.
Adelaide
Adelaide recorded a 0.5% uptick in May and a 4.8% annual rise. Strong population growth and attractive median prices compared to eastern capitals have spurred buyer interest. SQM forecasts a further 10%–14% appreciation by next year.
Hobart
Hobart’s values lifted 0.4% in May, but annual gains remain subdued at 1.8%. Harcourts Tasmania notes that affordability relative to other capitals continues to draw demand, particularly among downsizers and retirees. SQM’s forecast of a 1%–5% gain reflects Hobart’s smaller market size and slower population growth.
Canberra
Canberra recorded a modest 0.4% increase in May but remains 0.7% below year-ago levels. Limited land release and the federal electorate’s stable employment base should support prices, with SQM predicting a 2%–6% rise by early 2026.
Regional Market Trends
Outside capital cities, property values have also shown resilience, with each state’s “rest of region” segment recording positive gains in May. The strongest YTD increases were seen in regional South Australia (+3.8%), regional Queensland (+3.5%), and regional New South Wales (+3.2%). Low vacancy rates, tight rental markets, and lifestyle shifts prompted by improved remote work arrangements continue to benefit regional markets.
Regional buyers, however, face affordability constraints as well. The median regional house price across Australia now stands at approximately $625,000, up 5.5% from May 2024. While more affordable than urban centres, mortgage servicing requirements still represent 30%–35% of national average household incomes, according to Regional Australia Institute data.
Rental Market Conditions
Despite surging dwelling values, rental growth has moderated. Nationally, asking rents rose 3.2% over the 12 months to May, down from a peak of 8.0% in mid-2024. Vacancy rates remain exceptionally tight, averaging 1.5% across combined capitals—well below the decade average of 2.7%. These conditions continue to support rental demand, particularly from tenants priced out of home purchase markets.
Cotality’s Eliza Owen noted that Sydney and Melbourne are recording the softest rental growth among capitals following an extended period of extreme rental inflation. “While vacancy rates remain near historic lows, we expect rental growth to stabilise over the coming quarters as tenants respond to high rent burdens and seek alternative living arrangements, including shared housing and regional moves.”
Affordability, Election Implications, and Policy Debate
As Australia heads to the federal election, housing affordability remains a central issue for voters. Opposition parties have pledged to introduce further supply-side measures—such as fast-tracking planning approvals and increasing social housing stock—while the incumbent government has focused on demand-side incentives for first home buyers.
“The interplay between affordability and political imperatives is stark,” said independent economist Dr. Cassandra Blue of the Grattan Institute. “Government incentives aimed at supporting buyers can inadvertently inflate prices unless matched by planning reforms and supply increases. With over 1 in 10 households currently renting, policy makers must balance the needs of both renters and prospective buyers.”
First home buyer participation, by Centaline Research estimates, accounts for roughly 30% of all transactions in 2025. Centaline’s report highlights that 45,000 new entrants—predominantly driven by the promise of low-deposit finance—are poised to enter the market by early 2026. “As first home buyer demand intensifies, we’re likely to see competition at the lower end of the market put upward pressure on entry-level prices, pushing outer-suburban and regional markets to support this demographic,” the report states.
Outlook for 2025 and Beyond
Analysts broadly agree that a blend of lower interest rates, tight supply, and policy support will underpin further property price growth through 2025 and into early 2026. Barring a significant economic shock—such as a sharp rise in unemployment or a reversal in population growth—house values are expected to remain buoyant.
SQM’s Louis Christopher summarised the near-term outlook: “We anticipate national dwelling prices to rise between 6% and 10% over the next 12 months, with variations by region. Demand remains robust, and supply constraints are unlikely to ease quickly given the shortfall in new completions. Even if the cash rate stabilises at 3.5%, borrowing costs will remain historically low, encouraging further buyer participation.”
Yet, lingering concerns remain regarding affordability and potential economic headwinds. Eliza Owen offered a note of caution: “While price growth may be supported by rate cuts, household budgets are under pressure from higher living costs—energy, food, childcare—and soft wage growth. Any significant deterioration in the labour market could dampen housing demand and cap the pace of price rises.”
For prospective buyers, the narrowing of capital city dwelling value divergence suggests a more balanced market. Properties in previously underperforming cities like Melbourne and Canberra are now registering minor gains, reducing the price premium of Sydney and the premium differential between capitals. As a result, many buyers may look interstate or to regional areas for better value.
Conclusion
In May 2025, property values across Australia rose in unison, driven by lower interest rates, tight supply, and improving buyer sentiment. Analysts project combined capital city dwelling values to climb 6%–10% by early 2026, although affordability constraints and broader economic factors may temper these gains. Government demand-side incentives for first home buyers are expected to amplify competition at the entry level, while lingering supply shortages and surging population growth will continue to fuel market pressure. As the federal election approaches, housing policy remains a focal point for both voters and parties alike. In the short term, cheap money and limited stock will likely keep prices on an upward trajectory, but affordability challenges underscore the need for a balanced approach that addresses both demand and supply.
Key Forecasts:
• National price growth: +6% to +10% by early 2026
• Sydney: +3% to +7%
• Melbourne: +2% to +6%
• Brisbane: +11% to +16%
• Perth: +15% to +20%
• Adelaide: +10% to +14%
• Hobart: +1% to +5%
• Canberra: +2% to +6%
Drivers of Growth:
- Anticipated RBA rate cuts lowering borrowing costs
- Government demand-side measures for first home buyers
- Tight housing supply and undershoot of new dwelling completions
- Strong population growth and interstate migration
- Elevated auction clearance rates and higher transaction volumes
Potential Constraints:
• High median values relative to average household incomes
• Rising unemployment and softer wage growth
• Rental market dynamics and tenant affordability pressures
• Policy interplay between demand incentives and supply reforms
