The Australian property market continues to defy expectations. After weathering 13 interest rate increases between 2022 and 2023, home values have bounced back with surprising strength. The Australian Property Market Forecast now points to steady growth ahead, driven by interest rate cuts, chronic housing shortages, and persistent demand from a growing population. For buyers, sellers, and investors, understanding where the market is headed has never been more critical.
Recent data shows the nationwide median dwelling value reached AUD 848,858 by late August 2025, marking a 4.1% increase from the previous year. This growth comes despite affordability challenges that have pushed many Australians to their financial limits.
This article examines expert predictions for Australian property prices through 2027, explores regional variations across capital cities, and provides practical insights for navigating what’s ahead. Whether you’re a first-home buyer, property investor, or simply curious about where the market is headed, you’ll find data-driven analysis to help you make informed decisions.
Understanding Current Market Conditions
The Australian property market entered 2025 with momentum building after hitting bottom in early 2023. KPMG forecasts house prices to rise 4.9% in 2025, up from earlier expectations of 3.3%, driven by earlier-than-expected rate cuts and renewed buyer confidence. This upward revision reflects how quickly market sentiment can shift when interest rates begin to fall.
The Reserve Bank of Australia delivered its first rate cut since 2020 in February 2025, followed by additional cuts in May and August. The benchmark rate now sits at 3.6%, the lowest since April 2023. These cuts have immediate effects on borrowing capacity, allowing buyers to afford larger loans and bringing previously priced-out purchasers back into the market.
Three key factors drive current market dynamics:
Supply Constraints: AMP estimates a shortfall of 200,000 to 300,000 homes for Australia’s existing population. When demand consistently exceeds supply, prices rise—a pattern that has persisted for two decades. Construction activity has increased, but labor shortages and material costs continue to limit how quickly new homes can be completed.
Interest Rate Sensitivity: Lower rates increase affordability and make property more attractive compared to other investments. Commonwealth Bank economists expect the next rate cut in November to take the cash rate to 3.35%. Each quarter-point reduction expands borrowing power and typically stimulates buyer activity.
Rental Market Pressure: Rental inflation has eased to 4.2% annually in June 2025, down from a peak of 7.8% in August 2023. While this represents improvement, rents remain elevated, motivating many tenants to pursue home ownership despite high purchase prices.
Price Forecasts by Capital City
Sydney: Leading the Recovery
Sydney’s median house prices are projected to reach a record $1.83 million by 2026, representing a 7% increase, while unit prices are expected to hit $889,000, marking a 6% rise. As Australia’s most expensive market, Sydney demonstrates the highest sensitivity to interest rate changes. When borrowing becomes cheaper, Sydney benefits disproportionately.
However, not all analysts share this optimism. Property strategist Simon Pressley anticipates Sydney’s property market to shift from 4% growth in 2024 to a 4% decline in 2025, potentially erasing 15% of gains accumulated through 2024. This contrarian view highlights the uncertainty around affordability constraints potentially dampening demand.
Melbourne: Catching Up
Melbourne represents a recovery story after experiencing sharper pandemic-related contractions. KPMG expects Melbourne to grow 6% in 2026, with unit prices anticipated to increase by 7.1%. The city’s relative affordability compared to Sydney makes it attractive to buyers seeking value in a major capital.
Melbourne has become the sixth most affordable capital city market in Australia. With strong migration inflows and projections showing Melbourne will become Australia’s most populous city within four years, the growth potential becomes evident. New migrants typically rent for two to four years before purchasing, suggesting a surge in buyer demand from this demographic over the next couple of years.
Brisbane and Regional Queensland
Brisbane house prices are projected to reach $1.09 million by 2026, continuing growth momentum from recent years. The upcoming 2032 Olympic Games are driving substantial infrastructure investment across Queensland, creating a lasting positive legacy that should support property values long-term.
Townsville could deliver extraordinary growth of 25-30% in 2025, driven by a $12 billion commodities export industry, major infrastructure projects, and record-low housing supply. The city’s recent recognition as Australia’s Port of the Year underscores its economic transformation. For investors willing to look beyond capital cities, Townsville represents one of the most compelling opportunities.
Perth: Sustained Strength
Perth continues its remarkable run. House prices are forecast to rise 4%, while unit prices are expected to grow 5% in 2025. The city benefits from Western Australia’s strong mining economy, low unemployment, and the lowest property inventory ever recorded. Perth has demonstrated exceptional growth since 2020-2021, with investors who entered the market during that period seeing substantial returns.
Adelaide and Hobart
Adelaide’s property market remains solid, with prices expected to reach record highs. However, growth forecasts for 2025 show more modest gains of 2% as the city normalizes after rapid appreciation in previous years. Hobart faces similar moderating growth patterns at 1.8%.
Canberra: Relative Affordability
Canberra’s property market is expected to remain relatively affordable compared to other capitals, with house prices projected to reach $1.1 million, which is 7% below the 2022 peak. This presents opportunities for buyers seeking capital city living without Sydney or Melbourne price tags.
The Rental Market Outlook
Rental affordability has improved slightly but remains challenging. Over ten years to March 2025, rents paid in Australia rose 22%, though this is less than half the 48% increase seen in median advertised rents over the same period. This gap exists because existing tenants typically face smaller increases than those entering the market with new leases.
CBRE forecasts median apartment rents to grow 24% between 2025 and 2030 across Australian capital cities, with 92% of 2-bed apartments expected to have rents exceeding $700 per week by 2030. Sydney, Melbourne, and Canberra are expected to lead rental growth, reflecting rising household incomes and continued tight supply.
For investors, rental yields remain a critical consideration. Properties offering strong rental returns provide cash flow that helps offset mortgage costs. The key is identifying locations where rental demand remains robust while purchase prices haven’t yet peaked.
Investment Opportunities and Risks
Where to Look for Value
Units and Townhouses: Unit prices are expected to grow 4.5% in 2025, supported by affordability-driven demand. As house prices rise faster than incomes, buyers increasingly turn to apartments and townhouses as more accessible entry points. This shift creates opportunities for investors in well-located unit developments near transport and employment hubs.
Regional Centers: Cities like Townsville, regional Queensland, and parts of Western Australia offer higher growth potential than mature capital city markets. Infrastructure development, employment growth, and lifestyle factors drive demand in these locations.
Middle-Ring Suburbs: As affordability pressures intensify in inner-city areas, middle-ring suburbs with good amenities and transport connections become increasingly attractive. High-rise developments are appearing not just in CBDs but throughout middle suburbs, particularly in Melbourne and Sydney.
Risks to Consider
Affordability Ceiling: My Bui, AMP economist, notes rate cuts provide minimal relief compared to the 13 rate hikes since 2022 and how much prices have already gained. There’s a natural limit to how high prices can climb when household incomes aren’t keeping pace.
Economic Uncertainty: The RBA has downgraded annual economic growth forecasts to 1.7% from 2.1%, citing weaker public demand. If unemployment rises significantly or economic conditions deteriorate, property demand could soften quickly.
Supply Response: While current forecasts assume ongoing supply constraints, any acceleration in housing construction could moderate price growth. KPMG forecasts 160,000 new dwellings annually over the next two years—30% below the 224,000 homes needed to meet the National Housing Accord target. However, if construction ramps up faster than expected, supply-demand dynamics could shift.
First Home Buyers: Challenges and Strategies
The outlook for first home buyers remains difficult. Domain’s Chief of Research Dr Nicola Powell warns that the next year could be the toughest challenge yet for those trying to break into the property market. While rate cuts and government support offer some relief, they also tend to push prices higher by stimulating demand.
Featured Snippet: The Australian property market is forecast to grow 4-5% annually through 2027. Sydney and Melbourne will lead gains, with house prices reaching record highs. Interest rate cuts, housing shortages, and population growth drive demand, though affordability constraints may limit price acceleration in expensive markets.
Table: Capital City Property Forecasts 2025-2026
| City | House Price Growth 2025 | House Price Growth 2026 | Key Factors |
|---|---|---|---|
| Sydney | 3.3-7% | 7.8% | Interest rate sensitivity, strong demand |
| Melbourne | 3.5% | 6% | Recovery phase, migration inflows |
| Brisbane | 3.1% | 5.6% | Olympic infrastructure, lifestyle appeal |
| Perth | 4% | Strong | Mining economy, low inventory |
| Adelaide | 2% | Moderate | Normalizing after rapid growth |
| Canberra | 3.5% | Stable | Affordable relative to Sydney/Melbourne |
Practical Steps
- Focus on Borrowing Capacity: Each interest rate cut expands how much you can borrow. Use mortgage calculators to understand your position as rates decline.
- Consider Units: First home buyers should seriously evaluate apartments and townhouses. These properties offer better entry prices and often come with amenities that enhance lifestyle.
- Look Beyond Top-Tier Suburbs: Middle-ring and outer suburbs with good transport links offer better value while maintaining access to employment and services.
- Build Deposit Aggressively: In a rising market, the deposit requirement grows along with prices. Consistent savings and exploring government assistance schemes remain essential.
The Supply Challenge
The National Housing Supply and Affordability Council’s 2025 report shows housing affordability continued to deteriorate in 2024, with prices and rents reaching record highs as new supply continued to fall short of demand. Labor shortages, elevated material costs, and high interest rates have reduced project feasibility.
Australia needs approximately 175,000 new households per year from 2025-26. Current supply levels fall well short of this target. The country will fall about 375,000 short of the nationally agreed target of building 1.2 million new homes by mid-2029.
Why can’t supply catch up?
Labor Constraints: Australia lacks sufficient skilled construction workers. High apprenticeship dropout rates compound this problem, limiting how many tradespeople enter the industry.
Cost Pressures: Approval processes and taxes can account for up to 45% of a new home’s price in some states. These costs make many projects commercially unviable, particularly at price points where first home buyers operate.
Productivity Issues: Construction productivity has stagnated. Complex planning systems and excessive regulation drain resources that could otherwise go into building homes.
Housing Affordability Crisis
In 2024-25, an estimated 1.26 million low-income households were in financial housing stress, spending more than 30% of their disposable income on housing. This represents a significant portion of Australian households struggling with shelter costs.
Households with new mortgages now spend 50% of their income on housing, while tenants spend 33% of household incomes on rent. These figures are unprecedented in modern Australian history. The time required to save for a home deposit has blown out to over 10 years in major cities.
The crisis affects different demographics unequally. Young Australians face particularly severe challenges entering the market. Regional areas, once considered affordable alternatives, have seen rents and prices rise dramatically. Over ten years to March 2025, Perth rents increased 50%, Adelaide 57%, and Hobart 64%.
What Could Change the Forecast
Several factors could alter the trajectory outlined in these forecasts:
Faster Interest Rate Cuts: If economic conditions deteriorate more than expected, the RBA might cut rates more aggressively. This would boost borrowing capacity and likely accelerate price growth beyond current projections.
Immigration Policy Changes: Australia’s population growth depends heavily on immigration. Policy shifts that significantly increase or decrease migration would directly impact housing demand.
Government Intervention: New policies targeting housing affordability—such as changes to negative gearing, capital gains tax, or massive social housing investment—could reshape market dynamics. While major reforms seem politically unlikely, unexpected policy shifts can’t be ruled out.
Global Economic Shocks: Trade tensions, geopolitical conflicts, or financial market disruptions could quickly change Australia’s economic outlook and property market trajectory.
Frequently Asked Questions
Will Australian property prices keep rising in 2025? Yes, prices are forecast to rise 4-5% in 2025, supported by interest rate cuts and housing shortages, though growth will be slower than recent years due to affordability constraints.
Which Australian city will see the highest property growth? Townsville and Perth are forecast for strongest growth, with Townsville potentially delivering 25-30% gains. Among major capitals, Sydney and Melbourne lead forecasts for 2026.
Is now a good time to buy property in Australia? Interest rate cuts improve affordability, and supply constraints support prices. However, high prices relative to incomes create risk. Location and individual circumstances matter more than broad timing.
How will interest rate cuts affect property prices? Lower rates increase borrowing capacity, making property more affordable and attractive. Each cut typically stimulates buyer activity, particularly in Sydney and Melbourne where sensitivity to rates is highest.
What’s causing the housing affordability crisis in Australia? A combination of factors including chronic undersupply, strong population growth, stagnant wages relative to prices, construction constraints, and tax settings that favor property investment over other assets.
Looking Ahead to 2027
A Reuters poll of property analysts forecasts Australian home prices to rise around 4-5% annually over the next three years through 2027. This represents steady but moderate growth—a far cry from the boom conditions of previous decades but also avoiding the crash some predicted.
The Australian property market faces a fundamental tension between strong demand drivers and affordability limits. Population growth, housing shortages, and declining interest rates push prices upward. Yet there’s a ceiling to how much buyers can pay when household incomes aren’t keeping pace.
Experts note that rate cuts make servicing mortgages slightly easier but remain minimal compared to the 13 rate hikes since 2022 and substantial price gains already achieved. This reality suggests a market moving toward equilibrium rather than another explosive boom.
For investors and homebuyers, success will come from identifying specific opportunities rather than riding a general market wave. Properties offering genuine rental yields, locations benefiting from infrastructure investment, and areas where affordability hasn’t yet disappeared represent the best prospects.
The Australian property market remains one of the world’s most resilient and valuable. With total residential real estate valued at $11.1 trillion, property continues to serve as the foundation of wealth for millions of Australians. Understanding where the market is headed—and why—gives you the insight needed to make decisions aligned with your financial goals.
The forecast may not predict fireworks, but steady growth in a constrained market often creates the best conditions for building long-term wealth. The challenge lies in choosing wisely, acting decisively when opportunity appears, and maintaining realistic expectations about what the market can deliver.
