The Australian residential property market often sparks intense debate. On one side, optimistic real estate commentators recycle the old claim that “property doubles every seven years.” On the other, doomsayers argue the market is dangerously overvalued and overleveraged—teetering on the edge of collapse. The former implies home prices could double again in just over a decade, further worsening affordability. The latter, however, have predicted a crash for decades that has yet to materialize.
Beyond this polarized debate, there is widespread and understandable concern about housing affordability. Some blame investor incentives and tax breaks, while others point to a chronic supply shortage. As usual, the truth is more nuanced.
Here are seven key insights into the current state of Australia’s housing market.
1. The property cycle is turning upward
After a mild 0.3% dip, national home prices have been rising steadily since February. CoreLogic data indicates another 0.5% increase this month, signaling a renewed upswing. Gains are broad-based: previously softer markets like Melbourne, Hobart, Canberra, Darwin, and Sydney are rebounding alongside strong performers like Brisbane, Adelaide, and Perth.
2. Interest rates are pivotal
Interest rates heavily influence property dynamics. Lower rates improve borrowing capacity and investment appeal, while higher rates do the reverse. While recent supply constraints and population growth dampened the usual rate effect, current easing is reigniting price momentum. Historically, rate cuts (absent a recession) have led to average price gains of 3.9% over 12 months and 8% over 18 months. The RBA is expected to cut by 0.25% in August, November, February, and May—potentially accelerating if the labour market weakens further.
3. Chronic undersupply underpins price pressure
Since the mid-2000s, housing construction hasn’t kept pace with population growth. A dwelling shortfall of 200,000 to 300,000 units is estimated. While tax incentives and foreign demand play roles, the dominant driver is simple: demand has long outstripped supply.
4. Home completion times have worsened
Build times have surged—up 57% for houses and 65% for units over the past decade—due to regulatory burdens, labour shortages, and rising costs. To meet the Housing Accord target of 240,000 dwellings annually (vs. 180,000 last year), governments must streamline planning, boost builder capacity, and encourage affordable, efficient construction models.
5. Housing is deeply unaffordable
Since the 1990s, affordability has deteriorated. Today it takes about 10 years for an average earner to save a 20% deposit—up from just four decades ago. The price-to-rent ratio, adjusted for inflation, is 30% above its long-term average. This affordability crisis not only fuels inequality but limits how far this price cycle can run.
6. The market is highly fragmented
Despite talk of a singular “Australian market,” property values vary widely by location. Adjusted price-to-rent ratios show houses are roughly 30% overvalued, while units are only 1% overvalued. Perth and Melbourne stand out as undervalued for units and less overvalued for houses—offering relative value.
7. Mortgage arrears remain low
Despite affordability concerns and high debt levels, mortgage arrears are under 1%—low both historically and internationally. Even among high loan-to-value or loan-to-income borrowers, arrears remain modest and are falling. This resilience reflects prudent lending standards, strong employment, and household savings buffers from the pandemic.
Outlook
Property price forecasting is inherently uncertain. AMP’s base case is that prices may rise 5–6% in 2025, driven by rate cuts and undersupply, but moderated by affordability constraints.
Key downside risk…rising unemployment and delayed cuts.
Upside risk… another wave of FOMO. For investors, the focus should be on properties with solid rental yields.
Rick Maggi CFP, Financial Advisor Perth, Westmount Financial
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Disclaimer
This article has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.