National home prices rose 0.39% in May, marking the fifth consecutive month of growth and a new record high for Australian home values.
Since the Reserve Bank’s February rate cut, price momentum has reaccelerated and broadened, with all capitals seeing prices lift.
National annual price gains now sit just above 4%, with capital city markets leading the charge and broad-based increases signalling growth becoming more synchronised across the country, and the divergence seen in 2024 narrowing.
Capital city markets are leading growth and all capitals recorded price increases in May, reflecting a more balanced upswing relative to the divergence in performance seen in 2024.
This shift reflects improving sentiment and buyer confidence across diverse geographies, following interest rate cuts.
Melbourne and Hobart are staging notable rebounds after underperforming in 2024, buoyed by improved borrowing capacities and heightened buyer activity.
In contrast previous front runner Perth - which has consistently outperformed in the past 2 years - is showing signs of moderation, reflecting the convergence in momentum across markets.
The surge in Perth’s home prices seen in recent years culminating in the city overtaking Melbourne’s median home value for the first time in a decade reflects a confluence of structural and cyclical factors that have tightened housing market conditions in Western Australia.
Affordability has been a key driver. Perth entered the current upswing from a relatively low price base, following an extended period of underperformance throughout the late 2010s and early 2020s. As other capital cities, particularly on the east coast, saw sharp increases in home values during the pandemic and subsequent recovery, Perth remained comparatively affordable. This has attracted a growing cohort of interstate migrants and investors seeking better value and rental returns.
Secondly, the city has experienced strong population growth, particularly through interstate and overseas migration, which is adding to underlying housing demand.
Supply constraints have also played a significant role. New housing completions remain below historic averages, owing to labour shortages, materials cost pressures, and bottlenecks in the construction sector. These constraints have restricted the ability of new supply to respond to rising demand, contributing to upward pressure on prices.
In addition, Perth’s tight rental market, characterised by historically low vacancy rates and rapid rental price growth in recent years, has added to demand from investors, further fuelling price momentum.
Finally, interest rate cuts in early 2025 have provided a renewed tailwind to borrowing capacity and buyer sentiment, though the impact has been more pronounced in previously softer markets like Melbourne.
Regional areas rose 0.25%, with annual growth of 5.19% outpacing the combined capitals (+3.71%), although capital cities led monthly growth (+0.45%).
Prices in both capital cities and regional areas are sitting at record highs. Regional prices are now 65% higher than 5 years ago.
Nationally house prices lifted 0.46% in May, while unit prices nationally rose 0.09%. National house prices have lifted 4.23% over the past year, growth in unit values (3.58%) has been weaker through the same period.
Markets in Queensland and South Australia continue to record the strongest growth.
Despite moving lower again this month, interest rates have been sustained at high levels for much of the past year, and home prices have risen significantly in recent years whilst growth in household incomes has not kept up with these increases. As a result, affordability has deteriorated significantly.
More affordable regions have outperformed over the past year, with strength in home buying demand buoyed in these regions as buyers push down the value chain.
Lower interest rates have lifted borrowing capacity and boosted buyer demand. And with further rate cuts expected, prospective buyers are moving off the sidelines, accelerating purchase decisions.
Looking ahead, while stretched affordability will remain a constraint, a chronic lack of new housing supply, population growth, and targeted buyer incentives are expected to keep upward pressure on prices.
In combination with interest rates continuing to move lower, these factors are likely to drive further price growth through the remainder of 2025.
