Property prices lift in May as interest rates fall, analysts expect rises of up to 10pc by early 2026

Australia Broadcast Center

2 days ago

House prices have continued rising across the country amid interest rate cuts and expectations are that as more buyers return to the market, property values will keep rising.
Property analysts think capital city combined dwelling prices could rise between 6 per cent to 10 per cent by late this year or early next year.
Data from Cotality (formerly CoreLogic) shows that house prices trended higher in May.
Its national Home Value Index recorded another 0.5 per cent in May, taking the national index 1.7 per cent higher over the first five months of the year.
The gains were broad-based, with every capital city posting a rise of at least 0.4 per cent through the month.
Cotality's head of research, Eliza Owen, says house prices are being fuelled by interest rate cuts — both those that have already happened, but also potential cuts in the coming months.
"At the moment another two rate cuts are expected over the course of the year by most of the major banks, and the influence on the market is likely to be higher values and higher sales activity.
"Yes you will get a boost to borrowing capacity from lower interest rates, but that still puts an affordable purchase price for many households much lower than where property prices actually are especially when you consider the median house value in the combined capitals is now over $1,000,000.
"And I think other factors like rising unemployment, softer wages growth could put a bit of a lid on that growth rate as well."
Ms Owen said, off the back of Labor policies aimed at helping first time buyers, there could also be a further rise in buyer sentiment.
She noted that while the government's expanded 5 per cent deposit guarantee doesn't 'go live' until next year, some first home buyers may look to get into the market this year to beat the rush of buyers expected next year.
SQM's head of research Louis Christopher said he also expects more rate cuts and house prices to rise amid more buyer demand and tight supply of housing.
The property research firm is forecasting a rise in capital city combined dwelling prices of 6 per cent to 10 per cent next year.
Mr Christopher said the RBA would cut the cash target rate at its next board meeting, scheduled for July 8 by another 0.25 per cent, but it could cut by as much as 50 basis points "if there are any further softening signs for the economy such as a weak GDP growth number and/or a weakening jobs market".
He said this will put upward pressure on prices from as early as the September quarter.
He expects dwelling values per capital city by next year of: Sydney +3 per cent to +7 per cent, Melbourne +2 per cent to +6 per cent, Brisbane +11 per cent to +16 per cent, Perth +15 per cent to +20 per cent, Adelaide +10 per cent to +14 per cent, Hobart +1 per cent to +5 per cent, Canberra +2 per cent to +6 per cent.
He noted SQM research has been recording a firming of auction clearance rates and higher volume activity in very recent weeks.
"Other factors contributing to this present increase in buyer demand include the end of the federal election and ongoing increases in underlying demand for accommodation given our ongoing surging population growth rates.
"This, combined with ongoing low levels of dwelling completions, are all fuelling the conditions for a short-term surge in dwelling prices."
He said while the federal government have also committed to building new homes to boost supply, its target of 1.2 million dwellings completed by FY29 "is very likely to be missed by an estimate of between 250,000 to 400,000 dwellings", which would mean supply relatively to demand remains weak for some time yet.
Gino Farina is the founder of mortgage broking business Bondi Broker based in Sydney but services clients across the country.
He says rate cuts are already factoring into buyer decisions and another two rate cuts expected this year will see more people be able to get a home loan.
He thinks that could further push up demand for housing and thereby prices.
"It does increase peoples borrowing capacity … that increased confidence is helping," he said.
"We're seeing a mix [of buyers]. We're still seeing the first home buyers … and we [help them] really leverage a lot of the government programs to help those people get into the market.
"Investors are still out there but it's obviously more challenging for investors, and also for people looking to upgrade.
"What were finding now is buyers are realigning their expectations to what they can afford."
Ms Owen said the monthly rise in Cotality's house price index values comes after a short-lived decline of just 0.4 per cent over the three months ending January 2025, with the February rate cut a key factor supporting property price rises.
However, she noted that the annual pace of gains in the national index slowed to 3.3 per cent, the slowest twelve-month change since the year ending August 2023.
Only Melbourne (-1.2 per cent) and Canberra (-0.7 per cent) have recorded an annual fall in dwelling values.
Capital city dwelling value trends are converging, with the gap between the highest and lowest annual changes narrowing to 9.8 percentage points, and it hasn't been this narrow since March 2021.
"Markets like Brisbane, Adelaide that were going really, really strong this time last year have slowed down your quarterly growth rate of about 1 to 1.5 per cent.
"Meanwhile, cities that were seeing more consistent declines like Melbourne and Canberra are now into positive territory for the Sydney market, which are quarterly uplift of 1.1 per cent."
Regional markets are also showing a positive trend, with each of the 'rest of state' markets recording a rise in values through the year-to-date.
The strongest gains recorded were in regional South Australia, where values are up 3.8 per cent over the first five months of 2025.
Ms Owen said the largest capitals, Sydney and Melbourne, are now among the softest rental markets in the country following a period of extreme rental growth.
The slowdown in rental growth across most markets comes despite rental vacancy rates remaining close to historic lows.
Every capital city continues to see rental vacancy rates below 2 per cent compared with a decade average of 2.7 per cent across the combined capitals.
"The rental market has grown about 3 to 3.5 per cent over the past 12 months and it's a slow down in the pace of growth.
"That's down from about 8 per cent in the previous 12 month period. We would expect that that growth [in rental prices] will continue to slow, maybe we'll get a stabilising.