A recent Reuters survey forecasts a 5.0% rise in Australian housing prices for the next year and 2026, reflecting strong market resilience despite rising interest rates. Key factors driving this growth include a supply shortage, low unemployment, and high immigration. While first-home buyers face challenges due to soaring prices outpacing wage growth, wealthier buyers are expected to dominate the market. The Australian government has initiated a plan to build 1.2 million homes by 2030 to address the housing shortage.
Forecast for Australian Housing Market Growth
A recent survey by Reuters, conducted between November 12 and 28, involving 12 real estate analysts, predicts a 5.0% increase in housing prices for both the upcoming year and 2026. This projection marks a notable acceleration compared to findings from an earlier survey in August.
Factors Fueling Real Estate Resilience
Despite the Reserve Bank of Australia’s interest rates climbing from 0.10% to 4.35% since May 2022, Australia’s median housing prices have surged with double-digit growth since the start of 2023, demonstrating the impressive resilience of the real estate sector.
This upward trend can be attributed to several key factors, including a significant supply shortage, a remarkably low unemployment rate of around 4%, and robust immigration levels.
Although borrowing costs have hovered near a 13-year peak for over a year, property prices have consistently risen for 21 months leading up to October. This upward trajectory is anticipated to persist, particularly with projections suggesting that the RBA may reduce rates by 75 basis points next year.
“The Australian real estate market is likely to continue thriving despite various economic, political, and interest rate fluctuations, as supply remains insufficient to satisfy the strong demand for both homes to live in and rentals,” stated Michael Yardney, founder of Metropole, a real estate consulting firm.
“The expected decrease in interest rates next year will rejuvenate consumer confidence and render some properties more affordable,” Mr. Yardney added.
While first-time buyers are still active in the market, a shift is expected next year, with wealthier individuals—equipped with more financial resources and real estate equity—taking the lead in driving demand.
In major urban centers, housing prices are projected to rise as follows: Brisbane by 5.0%, Adelaide by 6.0%, and Perth by 8.3% in 2025. Meanwhile, Sydney and Melbourne are forecasted to experience an increase of 4.0%.
Challenges for First-Home Buyers
According to Corelogic data, the median housing price has jumped from AUD 566,476 to AUD 874,827 (approximately USD 368,039 to USD 568,375) between March 2020 and October 2024, representing a remarkable increase of 54%. In contrast, the growth of average wages has lagged significantly.
“This current cycle has shown a marked decline in borrowing capacity, while property prices continue to grow strongly. Consequently, the gap between what people can borrow and the actual housing costs is expected to persist,” noted Johnathan McMenamin from Barrenjoey.
Any potential rate cuts from the RBA, which is currently the only major central bank yet to reduce borrowing costs, may not be seen for several months.
In response to the ongoing housing shortage, Australian Prime Minister Anthony Albanese launched a new construction initiative in October, pledging to build 1.2 million homes by 2030.