Lower rates fail to restore affordability as renewed price growth, tight supply and investor demand weigh on homebuyers
Australia’s housing market is expected to end 2025 in a position of renewed strength but with little easing in affordability, according to property listings platform Domain.
The firm’s End of Year Wrap 2025 Report noted that while the Reserve Bank of Australia’s first interest rate reductions in four years have helped ease repayment pressure, increased borrowing capacity and lifted sentiment, the gains have been largely offset by swift growth in both house and unit prices, with that trend expected to extend into 2026.
Across the combined capital cities, Domain forecasts house prices to be 9% higher by the close of 2025. Major markets recorded robust annual gains, led by Sydney, Brisbane, Adelaide and Perth, each up about 9%, with Melbourne rising around 7%. In dollar terms, Sydney house prices increased by about $150,000, Brisbane by $98,000, Adelaide by $92,000, Perth by $82,000 and Melbourne by $70,000 over the year.
Unit markets also strengthened, particularly in capitals that had been viewed as relatively affordable. Domain expects unit prices across the combined capitals to post 7% growth in 2025. In Adelaide, unit values climbed by 16% (around $90,000), while Brisbane units rose 14% (also about $90,000) and Perth units increased 12% (around $61,000), as price-sensitive buyers shifted towards lower entry points and searched for value.
Source: Domain
The Domain report highlights that the RBA’s rate cuts in February, May and August restored confidence more than they improved affordability. Lower rates helped drive up buyer enquiries and auction clearance rates to multi‑year highs, but also contributed to renewed price momentum. Australia’s median house price has now risen for 11 consecutive quarters, underpinned by tight stock levels and strong population growth.
Investor participation returned in force during 2025. Investor lending jumped by more than 20% over the first half of the year, lifting investors’ share of new housing finance above 40% – the highest level in almost a decade. This renewed investor presence has intensified competition in the lower price brackets, where many first-home buyers are active. With the federal government’s Home Deposit Guarantee scheme now in effect, Domain expects this heightened competition between investors and first-home buyers to continue into early 2026.
Rapid gains in Brisbane, Adelaide and Perth have also reshaped the affordability landscape. Adelaide has joined the ranks of million‑dollar house markets, Brisbane has become the nation’s second‑most‑expensive capital on this measure, and Perth is projected to reach a million‑dollar median house price by Christmas, according to Domain’s estimates.
For many prospective buyers, the response has been to adjust expectations rather than step away from the market. The report notes continued strength in unit markets and a marked increase in searches for properties that can support multiple generations or an additional income stream. Terms such as “dual,” “granny flat,” “duplex” and “dual living” have featured more prominently in Domain’s search data as households look for more flexible housing solutions.
“Rate cuts finally arrived this year, but they didn’t solve for affordability,” said Nicola Powell (pictured right), chief of research and economics at Domain. “In fact, they actually pushed prices even higher.
"Yes, the RBA’s rate cuts gave buyers some breathing room and lifted borrowing power by $73,800. But in most cities, those gains were quickly overtaken by rapid price growth, driven by a mix of undersupply, strong population growth and fierce competition.”
“We’re now ending the year with a clear shift. Stubborn inflation has diminished any hopes of a December rate cut, with the RBA now expected to hold rates well into 2026. Steady rates may actually help cool some of the late-year heat in the market, particularly as investors compete with first-home buyers supported by government incentives.
“Even so, the fundamentals aren’t changing. Strong population growth, low vacancy rates, persistent undersupply, made worse by high construction costs, are likely to keep prices buoyant through the first half of 2026.”
For mortgage professionals, these findings point to a market in which serviceability gains from lower rates are being quickly capitalised into higher prices. Advisers and brokers may continue to see strong enquiry volumes, ongoing pressure in lower-priced segments, and increased demand for lending solutions that accommodate investor competition, multigenerational living and secondary income options.
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