The residential property market started 2025 with a sense of optimism. There was a buzz around the prospect of anticipated cuts to the cash rate during the course of the year. Buyers were factoring in the likelihood of interest rate cuts and looking to buy before a reduction in borrowing costs could fuel further price increases.
For the first three quarters of the year, it looked as if rate-cut expectations would be met, with three cash rate cuts in February, May, and August. However, there have been no interest rate cuts since then. Higher-than-expected inflation figures may keep the cash rate on hold at 3.6 per cent for a while. While interest rates have played a key role in shaping the residential property market, other notable factors have been influential as well.
Australia’s capital cities performed exceptionally well in the Economist Intelligence Unit ‘world’s most liveable cities rankings, with Melbourne (4th), Sydney (6th), Adelaide (9th), Perth (15th) and Brisbane (16th). Judging criteria included stability, healthcare, culture and environment, education and infrastructure. The paradox with another international study is that the Demographia International Housing Affordability survey needed to create a new affordability rating for Australia – “impossibly unaffordable”.
Affordability (or lack thereof) has been a significant factor in many markets, as has higher recent price growth concentrated in locations with lower median dwelling prices ABS data shows net interstate migration from New South Wales to Western Australia and Queensland is running at extraordinary levels, with affordability being a significant driver for this population movement.
A factor that continues to place upward pressure on prices has been the restricted supply of housing on the market. Total listings (stock on the market) are 18 per cent below the five-year average. New residential construction is falling well below Housing Accord targets, while the population is increasing due to migration.
October saw the introduction of the First Home Guarantee scheme. Financial assistance for first-home buyers was expected to place upward pressure on prices of residential property at the lower end of the market. As the year draws to a close, we are still waiting for data that shows a clear impact from the scheme, with many contracts yet to settle and a significant increase in processing times for application approval.
“Affordable housing” has unfortunately lost its meaning for a large cohort of buyers, who now find any housing unaffordable.
While many markets have seen significant price growth, the Melbourne residential market has seen far slower gains, in large part due to property taxes. Victoria’s property taxes now account for almost 50 per cent of all state tax revenue.
At the time of writing, the last two weeks of auction results for capital cities (the last week in November and the first week of December) show a softening in clearance rates. This may be a sign of uncertainty as there is a divergence of opinion regarding the future movement of interest rates – forecasts range from three 25 basis point increases to two 25 basis point cuts in 2026.
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