19-05-2025
The cities where house prices are set to surge this year as interest rates are slashed
House prices are set to surge in 2025 and 2026 as the Reserve Bank slashes interest rates, a major bank says.
The Reserve Bank of Australia is broadly expected to cut interest rates on Tuesday, taking the cash rate from 4.1 per cent now to 3.85 per cent.
The futures market regards a May 20 rate cut as a 96 per cent chance, and sees the RBA cutting rates four more times by early 2026.
Another 100 basis points of relief would see the cash rate fall to 3.1 per cent for the first time since February 2023, and see the middle house price climb above $1million in Brisbane, Melbourne and Canberra.
The Bank of Queensland 's chief economist Peter Munckton is expecting Australian capital city house prices to climb by 11 per cent over 2025 and 2026, including a six per cent increase next year following a series of rate cuts.
'The expected house price rise over the next couple of years - around 11 per cent - is projected to be at the lower end of the 10 to 15 per cent range that typically occurred after monetary easing cycles. This reflects the low level affordability,' he said.
An 11 per cent increase over two years would see the typical capital city house soar from $1.009million to $1.123million with a heavy weighting towards Sydney, based on data from Cotality, previously known as CoreLogic.
'I expect the largest house price rises over the next couple of years to be in the more affordable cities,' he said.
'Affordability continues to an important theme in the housing market, with the fastest price growth in lower-priced houses and slowest in higher-priced houses across all capital cities.'
Cotality Australia's head of research Eliza Owen said a third of Australian homes were now worth more than $1million 'with that vast amount of money buying less in the housing market than ever before'.
'Australia's million-dollar housing markets are in part a reflection of our wealth and prosperity as a nation,' she said.
'After all, housing markets wouldn't have a million-dollar price tag if at least some of Australians couldn't come up with that level of finance.'
Perth, already Australia's strongest performing housing market with high rental yields, was expected to a see a 15 per cent increase over two years, taking the median price from $847,518 to $979,222.
'The Perth market is only modestly over valued despite the very sharp house price rises over the past couple of years,' Mr Munckton said.
Darwin, Australia's most affordable capital city market last year at $586,699, was expected to see a 14 per cent surge, taking mid-point prices to $671,653 by the end of 2026.
Melbourne, an underperforming market in 2024, was tipped to see a 12 per cent increase, taking prices from $917,616 to $1.031million.
'Melbourne is also modestly expensive although better value than Sydney, Brisbane and Adelaide,' he said.
Adelaide, a soaring market despite weaker population growth, was also forecast to see a 12 per cent increase, which would see prices rise from $866,327 to $973,318.
Brisbane, a strongly performing market last year, was tipped to see an 11 per cent increase, taking prices from $977,575 to $1.088million.
Sydney, Australia's most expensive housing market, was predicted to see an 8.8 per cent increase, which would see values climb from $1.471million to $1.598million.
Hobart was expected to see a 10 per cent increase, taking prices from $693,924 to $764,774.
Canberra, the home of federal public servants, was expected to see a 10 per cent increase that would take prices from $965,910 to $1,064,529.
Ms Owen said the growing number of cities with $1million homes was bad for young aspiring home buyers.
'The rate of home ownership has gradually declined over time, particularly among younger, low-income households where income cannot keep pace with growth,' she said.
'The average age of first-home buyers has increased, and increasingly wealthy households are stuck renting for longer, which increases competition for low-income renting households.'
Mortgage debt levels were only likely to keep soaring, as the wealth divide widened.
'Housing debt has also blown out to keep pace with rising values relative to more subdued wages growth,' she said.
'With values expected to continue rising on the back of rate falls in 2025, the wealth divide between home owners and non-home owners is also likely to expand.'
