The property market in 2025: A year of unexpected twists and turns. The year began with a glimmer of hope for mortgage relief, but as 2025 drew to a close, the reality painted a different picture. Let's dive into how the property market defied expectations.
Initially, the market seemed promising. The Reserve Bank's three cash rate cuts fueled a surge in home values, as buyers gained more borrowing power. However, by the end of the year, experts were already predicting the end of this easing cycle.
Eliza Owen, Head of Australian Research at CoreLogic, highlighted that Australian home values rose by 7.7% by the end of November, surpassing the previous year's 5.2% and the 20-year average of 5.1%. But here's where it gets interesting: this growth was particularly noticeable in smaller capital cities. Sydney saw a more modest increase of 5.1%, while Melbourne experienced a 4.2% rise.
"Falling rates pushed the market into outperformance this year," Owen stated, noting the cash rate at 3.6%. The rapid response from major banks in reducing mortgage rates was evident. Up until the final quarter of the year, experts widely anticipated further rate relief in 2026.
This optimism spurred a strong start to the spring selling season. But, as inflation picked up towards the end of the year, the outlook shifted, impacting the property market. This led to a plateau in value growth in Sydney and Melbourne during the four weeks leading up to mid-December.
Owen further explained that despite the rate reductions, the ongoing high mortgage costs prompted buyers to seek more affordable homes, driving up their values. The cheapest 25% of homes saw a 9.5% value increase, compared to only 6.2% for the most expensive 25%.
Dr. Nicola Powell, Domain's Chief of Research and Economics, pointed out that rate cuts were expected in 2024 but didn't materialize until 2025, becoming a defining feature of the year's market. She noted that the rate reductions provided greater momentum, especially in Sydney, which is more sensitive to cash rate changes. "Melbourne is that market that had struggled to move into an established recovery – 2025 was a definitive moment for Melbourne," she added.
First-home buyers received a boost with expanded access to the Australian Government’s 5% Deposit Scheme and the launch of the Help to Buy shared equity scheme in December. Powell believes these incentives are game-changers for many first-home buyers. But, she also agreed that more affordable properties are outpacing the upper end in price growth.
"First home buyers struggle in the face of rising prices, and that is basically what the market presented to them in 2025," she said. "So while they have been given a lever to get into the market through government schemes, ultimately they’re paying more for a home."
And this is the part most people miss: Investors made a comeback in 2025, now accounting for over 40% of home loans, concentrated in the established market, which meant that the purchases were doing little to create new supply. She described housing affordability as “extremely strained”.
Ray White's Chief Economist, Nerida Conisbee, echoed this sentiment, describing housing affordability as "not great." She noted that the market in 2025 was stronger than anticipated in late 2024. The hope for rate cuts at the start of 2025 marked a turning point. She expects an interesting start to the market in 2026, as some economists warn interest rates could rise.
Controversy & Comment Hook: Do you think government schemes effectively address housing affordability, or do they merely inflate prices further? Share your thoughts in the comments below! What are your predictions for the property market in 2026?
