Australian Housing Market Forecast: Will Rate Cuts Drive Prices Higher in 2025?

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Market Momentum: The Impact of Rate Cuts and Supply Constraints

With two recent rate cuts already implemented, Australia’s housing market is poised for significant activity. While some anticipate a market peak and potential price correction, the combination of expected further rate reductions and a persistent supply shortage suggests we may be entering the next phase of price growth. This may not be the consensus view, but it’s essential to examine the data and trends shaping the market.

Key Factors Shaping the Market

Whether you’re considering entering the market, investing, or evaluating your current position, five critical factors deserve your attention:

1. Interest Rate Reductions Fuelling Demand
   Recent rate cuts have increased borrowing capacity and reignited buyer interest. Pre-approvals are up 24% year-on-year, indicating a surge in market participation. Notably, at Aussie Home Loans, pre-approvals have risen 30% since November 2024, with a 65% increase in customers using borrowing power tools. This uptick reflects renewed confidence and readiness among buyers.
   

2. Projected Price Growth and Market Insights
   Leading research firms forecast substantial price increases. SQM Research anticipates national price growth of 8-15%, with some regions potentially seeing gains of 20-25%. Domain projects a 12% rise over the next two years, should the official cash rate fall by 1.5% from its peak. While these are broad estimates, more affordable markets may experience outsized growth, while premium markets like Sydney and Melbourne could see greater volatility.
   

3. Chronic Housing Shortage Intensifies Competition
   The National Housing Supply and Affordability Council’s 2025 report forecasts only 938,000 new dwellings by 2029, 262,000 short of the government’s target. This persistent undersupply, with annual deficits projected through 2029, continues to drive competition and upward pressure on prices.
   

4. Affordability Crisis: Navigating New Realities
   Housing affordability remains a significant challenge. Today, purchasing a home is nearly four times harder than in 1980, relative to income. While this presents obstacles, it also underscores the importance of strategic planning, research, and flexibility, such as considering alternative locations or property types.
   

5. Evolving Buyer Behaviour and Market Dynamics
   Increased pre-approvals and heightened competition mean buyers must act decisively. However, 66% of pre-approvals lapse, often due to frustration or inability to secure a property. Success in this environment requires a proactive approach, expert guidance, and a clear strategy.

In today's fast-moving market, navigating the complexities of property search, negotiation, and due diligence can be overwhelming. That's where a buyer's advocate can provide invaluable support. By acting as your dedicated representative, a buyer's advocate can streamline the process, identify hidden opportunities, and negotiate the best possible outcome on your behalf. With demand high and supply limited, having a skilled advocate in your corner can be the key to securing your dream property.

Market Projections: What Could Price Growth Look Like?

If Domain’s 12% forecast materialises, median house prices could reach:

• Sydney: $1.9 million

• Melbourne: $1.1 million

• Brisbane: $1.1 million

• Adelaide: $1.1 million

• Canberra: $1.1 million

• Perth: Over $1 million

• Hobart: $800,000

• Darwin: $730,000

• Combined capitals: $1.3 million

It’s important to note that higher-priced markets are more sensitive to rate changes, leading to greater volatility. Domain’s analysis, based on the Tulip model, suggests that for every 1% cut in the cash rate, prices rise by 6% in the first year and 8% by the second.

Balancing Optimism with Caution

While rate cuts and supply constraints support price growth, healthy market corrections are both normal and necessary. Should we see double-digit growth in 2025 and 2026, a period of stabilisation or modest decline in subsequent years would be beneficial, allowing buyers and sellers to recalibrate.

Strategic Considerations for Buyers and Investors

Success in today’s market requires moving beyond macro trends to focus on micro-level analysis:

• Which suburbs and streets offer the best value?

• What property types align with your goals?

• How can you position yourself to act quickly and confidently?

A tailored, research-driven approach, supported by expert advice, can help you avoid costly mistakes and capitalise on emerging opportunities.

Looking Ahead: Interest Rates and Affordability

Market expectations suggest further rate cuts, with the cash rate potentially reaching 3% by early 2026. While this may ease borrowing costs, affordability remains a challenge. Strategic planning, a robust financial buffer, and a long-term perspective are essential.

Empowering Your Next Move

At North South Real Estate, we believe in empowering clients with clear insights, bespoke strategies, and unwavering support. Whether you’re buying, selling, or simply exploring your options, our team is here to guide you every step of the way.

From expert buyer's advocacy to strategic advisory services, and seamless property management, we offer a comprehensive suite of solutions tailored to your unique needs. Our goal is to provide you with the knowledge, resources, and personalised support you need to achieve your property aspirations with confidence.

Ready to Take the Next Step?

If you’d like a personalised assessment of your property goals or want to discuss the latest market trends, we invite you to schedule a complimentary consultation with our expert advisors.
Contact us today to start your journey with confidence.