Australian housing market is rhyming with history, if not repeating

History might not repeat, but it certainly has a tendency to rhyme.

Take the current state of the Australian housing market. A lot has been said of severe supply restraints and unchecked house price growth that have pushed affordability further and further away from aspiring homeowners.

Those challenges are very real and present, but according to BOQ chief economist Peter Munckton, while we are certainly living in an interesting time for the housing market, it’s not exactly unprecedented.

Looking back on market developments over the past quarter century, Munckton noted the diversity of housing market reactions to previous rate-cutting cycles.

Since 1980, two episodes of rate cuts have led to house prices soaring over 20% in the two years thereafter. It’s worth noting that in both of these instances, the housing market was coming off a price trough. Pointing out the obvious, “that is not a term that could be used to describe the current level of house prices”, said Munckton (pictured, right).

Another two occasions saw housing prices climbing just 5% or less, reflecting the high unemployment rates at these times. Take a peek at Thursday’s shockingly good unemployment figures and you’ll realise the same cannot be said today.

On 50% of occasions, house prices grew between 10-15% following a rate-cutting cycle. While today’s economic climate is unique, this is looking like a decent assumption for where house prices might end up this time around.

Most of the heavy lifting has already been done, mind you.

BOQ calculations show that dwelling prices surged by 11% in 2025, with growth hotspots centred around Queensland, South Australia and Western Australia. Price growth was more pronounced in the cheaper end of the market, reflecting ongoing affordability constraints among first-home buyers.

While other analyses, such as NAB’s Housing Monitor, suggest house price growth was lower at 8.6%, it doesn’t change the fact that 2025 was a red-hot year for the housing market.

The times are a changing though, with central bank rate cuts on hold (or, God forbid, poised to go up again) and the market generally cooling down a bit.

AMP chief economist Shane Oliver anticipates house price growth of between 5-7% in 2026, based on the view that the Reserve Bank of Australia keeps rates on hold. “But if rates start to rise again home prices could fall slightly,” he added.

Oliver’s prediction mirrors Munckton’s, who expects “Australia-wide standalone house price growth to be in the mid-single digits in 2026”.

The tide may already be turning, with housing market conditions cooling at the tail end of 2025 and capital city home values showing mixed results in the week ending 18 January.

The supply-demand imbalance is another thing to take into consideration.

Despite the evergreen anxieties around Australia’s housing supply shortage, the taps appear to be slowly but surely opening up.

“There is currently an upswing taking place in residential construction,” noted Munckton. “This should lead to greater supply of new dwellings that in time should help moderate house price growth. This increase in supply should be particularly evident in Queensland, South and Western Australia.”

Make no mistake – the Labor government continues to fall woefully short of its 1.2 million new homes by 2029 target. Recent data shows an annual shortfall of around 70,000 homes, even though Labor treasurer Jim Chalmers remains staunchly behind his party’s ambitious target.

Nonetheless, Australia’s home building pipeline strengthened to a three-year high in November 2025, per Australian Bureau of Statistics data. “This increase in supply should be particularly evident in Queensland, South and Western Australia,” said Munckton, although he questioned whether the long-term supply of new housing can sustainably match population growth.

Credit: BOQ calculations, Cotality (formerly CoreLogic) data

Meanwhile in New South Wales, the Minns government has just fired up its $1 billion Pre-sale Finance Guarantee fast-track housing program by funding a 225-apartment complex in Sydney’s inner west. A drop in the bucket, but still a positive development.

Divergence among capital cities

Affordability constraints are likely to limit Sydney house price growth in the near term, said Munckton, while Darwin, Canberra and Hobart are expected to see the highest rate of growth.

Brisbane, Adelaide and Perth are also tipped to perform well this year, “but affordability concerns and rising supply could limit price growth in Brisbane and Adelaide to below that of Sydney in 2027”.

The main uncertainty is Melbourne, added Munckton.

“On affordability grounds (Melbourne) should be experiencing stronger house price rises than most other capital cities. The Victorian economy is underperforming although not significantly so. Population growth is strong. Supply growth of new homes is modest. Melbourne’s price growth is likely to exceed the national average though that has also been my forecast for the past couple of years.”