What will your home be worth in two year's time?
Well, despite higher interest rates and existing affordability challenges, property prices in many parts of Australia could increase by over $100,000 in the next two years according to analysis by PropTrack data and KMPG property forecasts which indicate that much of our housing market is on course for another round of strong growth.
KPMG suggest the upcoming growth will force house prices to surpass their previous peaks from early 2022 at a time when interest rates were exceptionally low.
According to KPMG, house prices in Sydney and Melbourne are projected to average $1.53 million and $1.02 million by 2025.
Meanwhile, Brisbane's median house price is estimated to be around $814,000 in two years, and in Adelaide and Perth, it would be approximately $768,000 and $678,000, respectively.
Forecast of growth in house prices (%, year on year)
(Percentage Change in Dwelling Price from Corresponding Quarter of Previous Year)
| Dec-2023 | Jun-2024 | Dec-2024 | Jun-2025 | |
| Sydney | 6.2% | 4.7% | 6.6% | 10.3% |
| Melbourne | 1.2% | 4.9% | 8.5% | 12.0% |
| Brisbane | 3.7% | 2.8% | 2.6% | 4.2% |
| Adelaide | 6.0% | 5.8% | 5.6% | 6.8% |
| Perth | 8.2% | 8.4% | 8.0% | 8.8% |
| Hobart | -3.5% | 6.0% | 11.3% | 14.2% |
| Darwin | -3.9% | -1.5% | 2.5% | 5.1% |
| Canberra | 1.2% | 4.4% | 7.0% | 9.4% |
| Australia | 4.1% | 4.9% | 6.7% | 9.4% |
Forecast of growth in unit prices (%, year on year)
(Percentage Change in Dwelling Price from Corresponding Quarter of Previous Year)
| Dec-2023 | Jun-2024 | Dec-2024 | Jun-2025 | |
| Sydney | 4.7% | 4.3% | 6.6% | 8.6% |
| Melbourne | -0.8% | 3.1% | 6.2% | 7.0% |
| Brisbane | 2.6% | -0.5% | 1.6% | 3.1% |
| Adelaide | 3.8% | 3.4% | 4.5% | 5.1% |
| Perth | 3.4% | 3.9% | 1.3% | 1.7% |
| Hobart | 2.2% | 8.7% | 9.9% | 10.0% |
| Darwin | -3.3% | 0.8% | 3.2% | 3.1% |
| Canberra | 0.3% | 0.9% | 2.3% | 2.8% |
| Australia | 2.2% | 3.1% | 4.8% | 6.0% |
But buyers in key locations could be paying well above the median prices in each city
The data from KPMG highlighted that when you apply the citywide forecasts to specific suburbs, it becomes evident that many areas could see a significant increase in the number of homes priced above $1 million.
In Brisbane and the Gold Coast, nearly 40 neighbourhoods could become million-dollar suburbs within the next two years.
In Melbourne, 68 new suburbs might join that category.
Meanwhile, in Sydney, 42 suburbs could experience median house prices of $2 million for the first time by mid-2025.
KPMG chief economist Brendan Rynne said constrained property supply would be one of the key price drivers during the current financial year.
He further explained:
"House and unit prices will then accelerate further in the next financial year as dwelling supply continues to be limited, due to scarcity of available land, falling levels of approvals and slower or more costly construction activity.
Housing shortages will combine with several other factors to push assets prices up next year. "
These forecasts are based on several factors, such as increased demand from people moving in, expected interest rate cuts in FY25, the possibility of easier lending conditions, and high rental costs encouraging more renters to become homeowners.
KMPG also predicts that foreign investor demand will increase, while developers will still face challenges in starting new housing projects.
Rynne commented:
"House prices were expected to grow faster than unit prices owing to the post-pandemic demand for more space as people continue to work from home."
PropTrack economist Eleanor Creagh raised a concern about a significant gap between the expected number of people moving to Australia and the available homes for them.
She referred to data from the ABS indicating that around 300,000 migrants might arrive in 2023, while Australia only constructed about 170,000 new homes by March 2023.
She further commented:
“Faster than expected population growth has meant more people are calling Australia home, against the backdrop of pre-existing housing supply issues, giving rise to a mismatch between housing supply and demand.
We need to increase our pace of building by almost 40 per cent from where it currently stands."
What this means for property investors
I see the current market offering a window of opportunity for property investors with a long-term focus.
You see…we are at the beginning of a new property cycle, something that doesn’t happen very often.
Not that I suggest you try and time the market- this is just too difficult, and in truth, you’ve missed the bottom which occurred in early 2023.
But if the market hand you an opportunity like this why not take advantage of it.
Taking advantage of the upturn stage of a new property has created significant wealth for investors in the past.
Moving forward, demand is going to outstrip supply for some time to come as we experience record levels of immigration at a time when we’re not building anywhere as many properties as we require.
At the same time the cost of construction of delivering new dwellings will keep increasing not only because of supply chain issues and the lack of sufficient skilled labour but because builders and developers will only commence new projects if they are financially viable and currently new projects will need to come on line at considerably higher prices than the current market price,
Of course in due course consumer sentiment will rebound when it becomes clear that inflation continues to fall and interest rates have peaked.
At that time pent-up demand will be released as greed (FOMO) overtakes fear (FOBE - Fear of buying early), as it always does as the property cycle moves on.
And strategic investors will take advantage of the opportunities our property markets offer over the next couple of years maximising their upsides while protecting their downsides.
We are also going to be experiencing a prolonged period of strong rental growth - the rental crisis will only worsen further, with no end in sight.
Now I'm not suggesting taking advantage of tenants, what I'm suggesting is to recognise there is currently a problem (lack of rental accommodation) and provide a solution.
And rather than trying to hunt down a bargain , focus on buying an investment-grade property in an A-grade location because these types of properties are in short supply but are still selling for reasonably good prices… Plus they’ll hold their value far better in the long term.
While it might feel counterintuitive to buy at a time when there are so many mixed messages in the media, you can benefit from less competition, low consumer sentiment, minimal downside risk and minimal risk of oversupply.
