Home prices in Australia are expected to rise at a slower pace in 2025 than initially anticipated, with modest support from interest rate cuts, according to a Reuters poll of property analysts.
A shortage of new homes, combined with stretched price-to-income ratios following a more than 40% surge in prices over the past five years, is likely to continue preventing many first-time buyers from entering the market.
The Reserve Bank of Australia (RBA) recently reduced its cash rate by 25 basis points to 4.10% in February, marking its first rate cut in four years. The central bank is expected to make two additional cuts later this year. However, analysts note that these rate cuts will not ease the underlying affordability challenges that many potential homeowners face.
According to a February 17-26 Reuters survey of 16 real estate analysts, home prices are forecast to rise by 3.7% in 2025. This is a more modest increase compared to the previous forecast, which anticipated a 5.0% rise, following an 8.0% increase in 2023 and a 5.0% rise last year.
Analysts predict more moderate gains in home prices over the next few years, forecasting a 5% increase in 2026 and 2027.
Johnathan McMenamin from Barrenjoey said, “You have to be middle-aged and above-average earning to enter the housing market,” adding that homeownership in Australia remains “a luxury.” The average asking price of an Australian property was A$814,293 in February, nearly eight times the average annual income. In Sydney, the average property price reached $1,193,228, nearly 12 times the average annual income.
“The short-term affordability constraints are significant, even with the RBA easing cycle,” McMenamin noted.
In Australia’s mid-sized capital cities, such as Brisbane, Adelaide, and Perth, where prices surged by 10-20% last year, analysts expect home prices to increase by 5-8% in 2025. Meanwhile, prices in Sydney and Melbourne are forecast to rise by around 3.0%.
Housing affordability and supply are expected to be key issues in the upcoming election, with both major political parties addressing voter concerns over escalating property prices, rental shortages, and homeownership challenges.
A Gallup survey conducted in 2024 revealed that over 75% of Australians were dissatisfied with the availability of affordable housing, ranking second only to Turkey in terms of dissatisfaction.
However, when asked about first-time buyer affordability in the coming year, seven of the analysts surveyed expected conditions to improve, while three anticipated worsening affordability.
“My Bui, an economist at AMP, commented, “If you compare affordability now with a few months ago, we do expect it to improve for most homebuyers. However, there will still be a gap between price and the capacity to pay, given how much home prices have increased in recent years.”
Bui emphasized that the main driver of house prices in Australia since the 2000s has been an imbalance between supply and demand, a structural issue that will take significant time to address. “It won’t be solved in just a couple of months with a couple of rate cuts,” she added.
