Key takeaways
Lower interest rates are fueling a broad-based recovery, with all capital cities recording positive growth in May and renewed buyer confidence.
The performance gap between capital cities is narrowing significantly, indicating a more synchronized national trend, although the overall annual pace of growth remains moderate.
Despite the positive momentum, record-high affordability pressures and tight lending policies are expected to act as a significant brake on any rapid price acceleration.
The Australian housing market is showing surprising resilience, with national dwelling values posting a fourth consecutive month of growth. Spurred on by recent interest rate cuts and the widespread expectation of more to come, a renewed sense of momentum is building. However, with affordability pressures at record highs and a slower pace of annual growth, the market is navigating a complex set of signals.
After a short and shallow dip at the turn of the year, the market has found its footing. Australian dwelling values rose another 0.5% in May, bringing the total gain for the first five months of 2025 to a solid 1.7%.
Key National Trends:
- Consistent Monthly Growth: May marks the fourth straight month of rising values.
- Slower Annual Pace: Despite the recent momentum, the annual growth rate has slowed to 3.3%, the weakest 12-month change since August 2023.
- Broad-Based Gains: Every capital city recorded a rise in values in May, a clear sign of a widespread recovery.
Note: The May update confirms that the market recovery is being fuelled by improved sentiment. Following the recent interest rate cuts, the capital city auction clearance rate jumped to 65.1%—its highest level since July of last year.
Australian Property May 2025: Month-on-Month Change in Dwelling Values
One of the most significant trends we're seeing is a clear convergence in performance across the capital cities. While last year was defined by diverse conditions, the market is now moving in closer alignment.
The range between the highest and lowest annual growth rates among the capitals has tightened to just 9.8 percentage points, the narrowest it has been since March 2021.
This convergence is also happening across different price points. While the recovery has been largely led by the more affordable end of the market, the upper quartile is now starting to accelerate, likely spurred on by renewed confidence following the rate cuts.
- Also read:Australian housing market update | June 2025
- Also read:Latest property price forecasts for 2025 revealed. What’s ahead in our housing markets in the next year or two?
- Also read:Sydney housing market update | June 2025
- Also read:Melbourne housing market update | June 2025
- Also read:Melbourne property market forecast for 2025 | Is it a good time to invest in Melbourne?
| City / Region | Monthly Change (May 2025) |
|---|---|
| Sydney | +0.5% |
| Melbourne | +0.4% |
| Brisbane | +0.6% |
| Adelaide | +0.4% |
| Perth | +0.7% |
| Hobart | +0.6% |
| Darwin | +1.6% |
| Canberra | +0.4% |
| Combined Capitals | +0.5% |
| Combined Regional | +0.4% |
| National | +0.5% |
The Rental Market: Growth Continues, But the Pace is Easing
For renters, there are early signs of relief. While vacancy rates remain tight, the macro trend is one of slowing rental growth. Affordability constraints and the normalisation of net overseas migration appear to be putting a ceiling on how high rents can go.After a period of extreme growth, Australia’s largest rental markets, Sydney and Melbourne, are now among the softest in the country. This slowdown is a national trend, with a few exceptions like Darwin and Hobart where rental growth has recently accelerated.
Looking Ahead: Property Market Outlook
Looking ahead, several factors suggest the market will maintain its positive, albeit modest, trajectory.
-
- Interest Rates: The RBA appears comfortable with the path of inflation, and the market widely expects further rate cuts this year, which will continue to support buyer activity.
- Political Certainty: With the federal election now in the rear-view mirror, a period of political stability often translates to renewed consumer confidence.
- First Home Buyer Support: The Labor Party's election platform included a first home buyer initiative with government-backed deposit guarantees. While not live until next year, we could see some buyers entering the market early to beat the rush.
- Housing Affordability: This remains the most significant constraint. The national dwelling value-to-income ratio is at a record high of 8.0, and mortgage serviceability is also at an all-time peak, limiting borrowing capacity.
- Lending Policies: Regulators are keeping a close eye on high debt-to-income lending, which will likely keep any exuberant price growth in check.
Overall, we expect housing values to continue their modest rise through 2025, though likely at a slower pace than what we saw in 2024. The interplay between lower interest rates and stretched affordability will be the central dynamic to watch for the remainder of the year.
