Key takeaways
Steady Growth Continues: The Australian housing market grew for the sixth consecutive month, with values rising a modest 0.6% in July, supported by low supply and the prospect of further interest rate cuts.
Affordability is the Handbrake: Despite positive conditions, severe affordability challenges and a record-high price gap between houses and units are limiting the pace of growth and acting as a significant barrier for buyers.
Rental Crisis Worsens: Renters face increasing pressure as national vacancy rates hold near historic lows at 1.7%, causing the rate of rental price growth to re-accelerate.
The Australian housing market has continued its steady recovery, notching up a sixth consecutive month of growth in July. The latest data from Cotality paints a picture of a market delicately balanced between powerful tailwinds and significant headwinds.
Note: Lower interest rates and a persistent shortage of homes for sale are fuelling buyer confidence and pushing values higher.
However, sky-high prices and affordability constraints are acting as a handbrake, keeping the pace of growth modest and sustainable.
Let's break down the key trends shaping the national property landscape in August 2025.
The National Picture: A Story of Steady, Modest Growth
After a positive turn in February following the first official rate cut, the national home value index has settled into a consistent rhythm.
- National Monthly Growth: Values rose by 0.6% in July, a pace that has held steady since May.
- Rolling Quarterly Growth: The national index rose 1.8% over the last three months, the strongest quarterly result since June of last year.
This stability is the result of a classic market tug-of-war. On one side, we have low supply, falling interest rates, and rising consumer confidence pulling prices up. On the other, severe affordability challenges and high household debt are pulling them back. For now, the positive forces are winning out, but only just.
Capital City Performance: A Two-Speed Market Emerges
While every capital city saw values rise in July, performance varied significantly, highlighting a clear divergence across the country.
Darwin led the charge with remarkable growth, while Perth also continued its strong run. At the other end of the scale, the larger markets of Melbourne and the ACT, along with Hobart, recorded much softer conditions.
Month-on-Month Dwelling Value Changes (July 2025)
| Capital City | Monthly Growth Rate |
|---|---|
| Darwin | +2.2% |
| Perth | +0.9% |
| Adelaide | +0.7% |
| Brisbane | +0.7% |
| Sydney | +0.6% |
| Canberra | +0.5% |
| Melbourne | +0.4% |
| Hobart | +0.1% |
Source: Cotality, August 2025
Supply vs. Demand: The Great Imbalance Continues
The core theme driving the market remains the stark mismatch between buyer demand and the number of properties available for sale.
- Also read:Australian housing market update | September 2025
- Also read:Melbourne property market forecast for 2026 | Is it a good time to invest in Melbourne?
- Also read:Latest Property Price Forecasts Revealed. Australian Property Market Outlook 2025–26: Where Prices Are Headed After Three Rate Cuts.
- Also read:Brisbane Property Market Forecast [2026] – What’s Ahead & Where to Invest
- Also read:Sydney property market forecast for 2026. Is it a good time to invest in Sydney?
- Low Inventory: National listings are tracking nearly 20% below the previous five-year average for this time of year. Put simply, there aren't enough homes on the market to satisfy demand.
- Strong Sales Activity: Despite the lack of choice, sales volumes are robust, sitting 1.9% above the five-year average.
- Auction Success: This imbalance has kept auction clearance rates strong, consistently tracking above the decade average since mid-May.
This dynamic creates a competitive environment for buyers and places a firm floor under property values.
The Great Divide: House vs. Unit Price Gap Hits Record High
The preference for detached houses continues to drive a wedge between house and unit prices. Over the last quarter, house values have once again outpaced units, stretching the affordability gap to a record high.
| Property Type | Quarterly Value Growth | Median Value Increase (Approx.) |
|---|---|---|
| Houses | +1.9% | $16,700 |
| Units | +1.4% | $9,700 |
Source: Cotality, August 2025
Nationally, the median house is now 32.3% more expensive than the median unit. In dollar terms, that’s a staggering difference of approximately $223,000.
The Rental Crisis: No Relief in Sight
For tenants, the news remains grim. Vacancy rates are stuck near historic lows at just 1.7%, and rental growth is picking up speed again.
- Quarterly Rental Growth: National rents rose 1.1% over the three months to July.
- Affordability Strain: The median household now needs to spend 32.6% of their pre-tax income on rent, a figure that disproportionately impacts younger and lower-income households.
The Outlook: Cautious Optimism for the Rest of 2025
Looking ahead, the foundations are in place for continued, modest growth in housing values.
The Tailwinds:
- Lower Interest Rates: With core inflation now sitting at 2.7% (comfortably within the RBA’s target range), an August rate cut is firmly on the cards, with two to three more expected over the next 12 months.
- Rising Confidence: As the cost of living eases and interest rates fall, consumer sentiment is expected to improve, which historically has a strong positive correlation with housing activity.
- Chronic Undersupply: Insufficient levels of new housing construction, hampered by high building costs, mean the supply shortage is unlikely to be resolved for at least the next couple of years.
The Headwinds:
- Housing Affordability: The dwelling value to income ratio is at 7.9, just shy of record highs, posing a significant barrier to entry.
- High Household Debt: Regulators are watching closely to prevent excessive debt accumulation as financial conditions ease.
On balance, the tailwinds appear strong enough to outweigh the headwinds for now. The upcoming spring selling season will be the next major test, as a seasonal rise in listings will reveal the true depth of buyer demand.
