July 2025 - Monthly Market Update

Australian housing values rose by 0.6% in June, marking five consecutive months of growth following a flat period at the end of last year. This reflects a broad-based upswing across nearly all major regions, with Hobart being the only area to record a monthly decline.

The first interest rate cut in February signalled a clear turning point, followed by another reduction in May, alongside increasing confidence in further cuts to come. This has boosted housing sentiment, contributing to the upward trend in values.

Despite the widespread growth, the quarterly pace remains moderate at 1.4%, particularly when compared to the 3.3% rise in mid-2023 and the 8.1% surge at the height of the pandemic.

Among the capital cities, Darwin led the way, with dwelling values up 4.9% for the quarter, enough to take the market to new record highs, finally surpassing the peak from May 2014. Perth and Brisbane followed closely, both of which have also been the strongest performers over the past five years, with values rising 81% and 75% respectively since June 2020.

Regionally, growth slightly outpaced the capitals over the quarter (1.6% vs 1.4%), but the momentum appears to be shifting back toward capital city markets, which have already outperformed regional areas over the past two months.

This rebound is happening in a market with relatively low sales turnover—currently tracking at 4.9% annualised, slightly below the decade average of 5.1%. Although demand is modest, advertised supply is tight, with listings 5.8% lower than a year ago, and 16.7% below the five-year average. This scarcity is contributing to more balanced market conditions and is reflected in improved auction clearance rates, which climbed to the mid-60% range in the final weeks of June.

Rental Market Overview

Rental growth has continued to ease nationally, with the rental index rising 1.3% over the June quarter—the lowest Q2 increase since 2020. On an annual basis, growth has slowed from a peak of 9.7% in 2021 to 3.4% over the 2024–25 financial year, the softest rise since February 2021.

This moderation comes despite vacancy rates remaining low, hovering around 1.5%, well below the pre-pandemic average of 3.3%. Rental affordability is a growing concern, with households now spending around one-third of their pre-tax income on rent.

Another factor easing rental demand is the decline in net overseas migration, now approaching pre-COVID levels as the temporary migration surge recedes. This is notable as new migrants typically rent, and slower migration is helping reduce pressure on rental markets.

Melbourne Market Snapshot

In Melbourne, dwelling values rose by 0.5% in June, bringing the quarterly growth to 1.1%, up from 0.7% in Q1. These gains follow three consecutive quarters of decline, with values rising 1.8% over the first half of 2025, adding approximately $14,000 to the median dwelling value.

Despite this, Melbourne’s housing values remain 3.9% below the peak reached in March 2022.

Rental growth in Melbourne has also cooled, with annual increases of just 1.2% to 2%—the slowest rate since July 2021.

Outlook and Key Influences

Looking ahead, a further reduction in interest rates is expected, potentially dropping into the low 3% or even high 2% range by year’s end. This, combined with tight labour markets, low housing supply, and easing inflation, provides support for continued—albeit modest—growth.

The latest monthly inflation indicator for May showed a core inflation rate of 2.4%, well within the RBA’s target range and below forecasts. As a result, many economists expect the RBA to cut rates by another 25 basis points in July, with more cuts likely to follow. Financial markets are now pricing in a 3.1% cash rate by December, and 2.9% in early 2026.

Lower rates are expected to enhance borrowing capacity, alleviate cost-of-living pressures, and bolster consumer sentiment. The labour market remains strong, with unemployment around 4.1%, helping to sustain confidence in purchasing decisions.

However, dwelling approvals remain well below the 20,000 monthly target needed to meet long-term housing supply goals, suggesting continued upward pressure on prices in the absence of meaningful new stock.

Risks to Watch

There are still significant downside risks:

• Affordability constraints

• High household debt, with a debt-to-income ratio of 181%

• A cautious lending environment

• Reduced population growth

• Broader geopolitical tensions, including instability in the Middle East, Ukraine, and ongoing trade disputes

Although national dwelling values rose between 2.4% and 4% over the first half of 2025—equating to around $19,000 in median value growth—this gain may offset the benefits of lower interest rates for many buyers.

In Summary

The combination of lower interest rates, resilient employment, tight supply, and improving sentiment suggests housing values will continue to rise modestly in the second half of 2025. However, the growth is not expected to match the levels seen in early 2023 or during the pandemic peak.