Housing values continue to rise as growth trends converge across the capital cities | Latest Cotality Data

Australian dwelling values rose another 0.5% in May, taking the national index 1.7% 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% through the month.

The continued momentum we’re seeing across almost all markets is no doubt being fuelled by rate cuts – both those that have already happened, but also potential cuts in the coming months.

Auction clearance rates have also picked up following the RBA’s May board meeting.

The rise in values comes after a short and shallow decline of just 0.4% over the three months ending January 2025, with the February rate cut a key factor supporting the positive turn in housing values.

	Change in dwelling values
	Month	Quarter	Annual	Total return	Median value
Sydney	0.5%	1.1%	1.1%	4.1%	$1,203,395
Melbourne	0.4%	1.2%	-1.2%	2.4%	$791,303
Brisbane	0.6%	1.6%	7.1%	10.9%	$917,992
Adelaide	0.4%	1.3%	8.6%	12.5%	$829,695
Perth	0.7%	1.6%	8.6%	13.3%	$813,810
Hobart	0.6%	0.9%	1.0%	5.2%	$673,858
Darwin	1.6%	4.3%	3.9%	10.6%	$525,770
Canberra	0.4%	0.5%	-0.7%	3.5%	$855,663
Combined capitals	0.5%	1.2%	2.6%	6.2%	$911,537
Combined regional	0.4%	1.6%	5.3%	9.9%	$678,818
National	0.5%	1.3%	3.3%	7.0%	$831,288

Source: Cotality HVI 1st June 2025.

With interest rates falling again in May, we are likely to see a further positive influence flowing through to housing values in June and through the rest of the year.

Despite some momentum forming in the monthly trend, in annual terms, the pace of gains in the national HVI slowed to 3.3%, the slowest twelve-month change since the year ending August 2023.

This slower annual pace of growth reflects the easing in capital gains through the second half of last year, culminating in the modest fall in values over the three months to January 2025.

Only Melbourne (-1.2%) and Canberra (-0.7%) have recorded an annual decline in dwelling values, demonstrating the resilience of the market through a period of relatively high interest rates and cost-of-living pressures.

Alongside the broad-based rise in home values, the capital city trends have shown a clear convergence.

The range between the highest and lowest annual change in dwelling values, at 9.8 percentage points, hasn’t been this narrow since March 2021.

The convergence is driven by a slowdown in value growth across mid-sized capitals, while previously softer markets like Melbourne and ACT move back into growth, driving a diminishing rate of annual decline.

The range in annual growth peaked in August last year with a 26.1 percentage point difference between the highest (Perth at +24.5%) and lowest (Hobart at -1.6%) annual growth rates, reflecting the most diverse growth conditions since 2007.

The rise in housing values continues to be led by lower price tiers across most cities, however, there has been some convergence here as well, as more expensive market segments start to accelerate off the back of rate cuts.

Across the state capitals, Sydney and Canberra are the only capital cities where the upper quartile is showing a stronger quarterly growth trend than the lower quartile of the market, while most other capitals have seen the upper quartile of the market narrow the gap in growth rates with the lower quartile and broad middle of the market.

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 have been in Regional SA, where values are up 5.8% over the first five months of 2025.

At the other end of the spectrum, regional Tasmanian values have held reasonably flat over the same period, up just 0.1%.

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Outlook

The RBA is becoming more comfortable with the path of inflation, supporting a widespread expectation that interest rates are set to reduce further.

Given the close relationship between interest rates and housing markets, there is likely to be further upside for the volume of home sales and prices.

Some renewed confidence in decision making after the federal election and an ongoing undersupply of newly built homes are other factors that are likely to support further price growth.

The RBA expects core inflation will be around the middle of the 2-3% target range by June this year, holding there until at least mid-2027.

Confidence that inflation will remain within the target range is crucial for interest rates to reduce further.

Adding to the argument for further rate cuts is the expectation that labour markets will gradually loosen throughout the year, with the unemployment rate forecast to rise to 4.3% by year’s end.

A relatively soft upwards trajectory in GDP growth, forecast to reach 2.1% for the 2025 calendar year, is another factor supporting a lower cash rate.

Alongside lower interest rates and lower inflation, it’s reasonable to expect a further rise in sentiment, albeit with offsetting factors like global uncertainty and tariff talks and conflicts likely to temper any substantial rise in sentiment.

Some renewed political certainty following the Labor Party’s federal election win is another positive for household decision-making.

A pillar of the party’s election platform was a first home buyer initiative opening access to home ownership with government-backed deposit guarantees.

While the Buyer’s 5% deposit guarantee doesn’t ‘go live’ until next year, we could see financially capable first home buyers looking to beat the rush in 2025.

There are also downside factors that will probably keep any material upswing in housing values in check.

Affordability pressures, which are evident across most housing markets, are also set to constrain housing demand to some extent.

At the end of last year, the national dwelling value to household income ratio was on par with record levels at 8.0, while home loan serviceability was also at an all-time high.

Lending policies and regulations are another factor that could keep a lid on housing exuberance.

Since 2023, borrowers with a debt-to-income ratio of six times or higher have been considered 6% or less of new loan originations.

Along with a higher housing-related debt level, these may sit with a tighter policy framework for lending in the medium term.

Lower population growth should also help to quell the accrual of housing demand in the absence of a supply response.

Overall, we are still expecting housing values to post a modest rise in 2025, albeit at a slower pace than what was recorded in 2024.