Interest rate cuts and government first homebuyer schemes will put a rocket under property prices over the next financial year.
The value of a median house in Australia will grow six per cent to $1.26 million in 2025/26, Domain predicts in its latest price forecast report, up from an increase of four per cent the previous 12 months.
The average unit will grow five per cent to more than $680,000.
A combination of lower borrowing costs, demand-side boosts like the federal government’s promise to extend a five per cent deposit guarantee for first homebuyers, and an ongoing supply shortfall will drive prices up, said Domain chief economist Nicola Powell.
Despite governments signing up to a target of 1.2 million of new homes by 2029, no states and territories are currently on track to meet their share of new supply.
“So the pipeline of new supply is still challenged and I think that when you do add a demand policy, anything that brings even more people to market or increases how much they can spend has an inflationary impact on pricing,” Dr Powell told AAP.
Sydney is tipped to retake the mantle of Australia’s fastest-growing property market, with house prices forecast to rise seven per cent to $1.83 million.
Given its higher valuations, Sydney is more sensitive to changes in the cash rate. Markets expect the Reserve Bank to cut the cash rate another three times by Christmas.
“It’s been eye-watering for some time. It has always been, and always will be, our highest priced housing market,” Dr Powell said.
While Melbourne house prices are predicted to grow less quickly than its sunny rival at six per cent, the Victorian capital is expected to experience a larger upswing, given its recent two-year downturn.
“When you look at Melbourne’s housing market, it’s deeply underperformed relative to other capital cities. It’s been the poorest performer over the last five years,” Dr Powell said.
“We are expecting Melbourne house prices to be at a new record high by the end of next financial year, which means they are going to be moving through into a full recovery.”
Even though Melbourne’s median house price will hit $1.11 million, that’s still 63 per cent more affordable than Sydney.
Perth will join the million-dollar club by the end of the financial year, although the five per cent growth forecast is down from the seven per cent rise the previous financial year.
Growth in Adelaide house prices will slow from 12 per cent to four per cent, while Brisbane will be steady at five per cent.
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