Key points
  • In 2025, RBA rate cuts temporarily eased mortgage costs and boosted buyer confidence, but renewed demand pushed house prices up 9% and units 7% nationwide, eroding affordability gains according to Domain data.
  • Government incentives, including the 5% Deposit Scheme, encouraged first-home buyers and investors to act sooner, increasing competition in a tight housing market.
  • Investor lending surged over 20%, with most funds directed toward established homes, further driving up prices and limiting relief for first-time buyers.
  • Entry-level homes in cities like Adelaide, Perth, and Brisbane became increasingly unaffordable, with median house prices surpassing $1 million in multiple capitals.
  • Looking to 2026, inflation and borrowing limits are expected to keep rates steady and prices high, with slower and more selective market growth due to persistent supply shortages and strong demand.

 

 

Domain's End of Year Wrap 2025 finds rate cuts lifted confidence yet accelerated price growth, pushing houses up 9% and units up 7% nationwide.

2025 saw the RBA cut interest rates for the first time in four years, briefly easing mortgage costs and boosting borrowers' purchasing power.

But that relief vanished fast as renewed demand pushed prices higher across every capital, eroding any gains households hoped to make.

Policy moves also shaped the year; the Australian Government 5% Deposit Scheme expanded access for first-home buyers, prompting investors and second-home buyers to act sooner to beat a surge in demand.

With supply still tight and population growth fueling demand, the report predicts this momentum will roll into 2026, leaving buyers stuck in an affordability squeeze even as borrowing conditions ease.

RBA cuts in action

In 2025, the RBA cut its benchmark cash rate three times. First, in February, lowering it from 4.35% to 4.10%, again in May, bringing it to 3.85%, then finally, in August, trimming the rate from down to 3.60%.

The RBA said the cuts responded to easing inflation and weaker economic growth, aiming to ease financial pressure on households and revive demand.

For homeowners, those reductions translated into smaller monthly repayments and greater borrowing capacity, offering real relief for variable‑rate mortgage holders. Each cut chipped away at the financial strain built up during the rate‑hike cycle.

But the rate relief reignited demand, sparking a surge of buyers and investors into the housing market and pushing prices sharply upward.

How rate cuts impacted housing affordability

Rate cuts gave buyers a breather, shaving monthly repayments, but rising home prices quickly swallowed the savings.

By the September quarter, Australia was in its 11th straight quarter of house price growth, the longest streak since 2012 to 2015.

Units were especially hot, climbing at more than twice last year's pace, while combined capital city house prices have jumped around 50% since 2019, pushing affordability to record lows, Domain research showed.

Population growth continues to outpace housing supply, with roughly three new residents for every new home built in recent years. That imbalance has kept both prices and rents on a steep upward trajectory, leaving many Aussies priced out.

Domain data shows a surge in demand for more flexible, lower-cost housing such as dual living, granny flats, and duplexes.

Investors make a comeback

Following February's rate cut, investor lending surged, outpacing owner-occupier new finance.

The Domain report showed that investor loans jumped more than 20% in the first half of the year, pushing their share of new housing finance past 40%, the highest in nearly a decade.

The bulk of this money flowed into established homes rather than new builds. Over 80% of investor loans went to existing properties, ratcheting up competition for first-home buyers without easing the supply crunch.

This trend intensified price pressures and exposed how current settings favor investment in existing stock over new construction.

Goodbye affordable capitals?

The Domain report dubs 2025 the year of the paradox: rates down, prices up.

In many cities, the post-cut surge pushed entry-level homes even further out of reach, leaving affordability stuck in reverse despite calmer finances.

Adelaide became part of the million-dollar club, joining Sydney, Melbourne, Brisbane, and Canberra, with its median house price surpassing $1 million.

Perth is on track to hit the same milestone by year's end, capping a multi-year streak of strong growth.

The city's unit market also surged, overtaking Canberra and Perth to become the nation's third-most-expensive in under four years, reshaping Australia's property hierarchy.

Meanwhile, Brisbane climbed to the second-most-expensive capital for the first time ever, signaling a broader shift in the market landscape.

Once seen as more affordable alternatives, Perth, Brisbane, and Adelaide are now firmly in the high-price bracket, reflecting years of above-average growth.

City

Houses Growth

Units Growth

Sydney

9% ($150,000)

5% ($39,000)

Melbourne

7% ($70,000)

5% ($29,000)

Brisbane

9% ($98,000)

14% ($90,000)

Adelaide

9% ($92,000)

16% ($90,000)

Perth

9% ($82,000)

12% ($61,000)

Canberra

4% ($48,000)

-1% (-$9,000)

Combined Capitals

9% ($99,000)

7% ($47,000)

Source: Domain 2025 End of Year Wrap

House prices climbed across Australia's major cities in 2025, with the strongest gains in Sydney, Brisbane, and Adelaide.

Unit prices also rose, though growth was more uneven, with Canberra even recording a slight drop.

The figures highlighted widening gaps between cities and property types, underlining the persistent affordability crunch for first-time buyers.

Suburbs to Watch in 2026

What to expect in 2026

Inflation reaccelerated late in 2025, dashing expectations of a December rate cut and shifting markets toward a long pause well into 2026.

Domain's Chief of Research and Economics Dr Nicola Powell said the year is ending with a clear shift.

"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," she said.

"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," Dr Powell said.

Both the Domain report and Cotality data signal a slowdown in 2026.

Domain highlights persistent structural pressures, noting that housing supply continues to lag population growth, keeping affordability tight for buyers and renters and pointing to a constrained market ahead.

Lower-priced suburbs to watch in 2026

Cotality's Best of the Best report revealed a national housing surge, with dwelling values closing 2025 at least 8% higher.

Lower-value markets led the charge, with Western Australia driving house price growth and Queensland's mid-tier suburbs like Cranbrook and Wilsonton seeing strong unit gains.

Regional results were mixed. Mining towns such as Newman and Kambalda East delivered the country's highest rental yields with houses up 12.6% and units nearly 18%. Meanwhile, other areas posted double-digit declines.

At the top end, Sydney's prestige suburbs held firm. Point Piper led with a $17.3 million median house price and units above $3.1 million, while Mosman racked up $1.58 billion in house sales, underlining the scale of turnover in the luxury market.

Cotality flags the added impact of borrowing limits, tighter credit checks, and rising inflation, noting that lower-value markets may still see gains while the broad, rapid growth of 2025 is unlikely to repeat.

Together, the outlook underscores that while momentum from 2025 carries forward, broader market conditions will be more restrained and selective.