Investors have roared back and house prices have clocked an 11‑quarter winning streak in 2025, pushing affordability to new lows despite three RBA rate cuts and expanded first‑home buyer support, according to Domain's End-of-year wrap.
Housing affordability didn’t really get any easier in 2025, Domain said. Lower rates shaved monthly repayments, but rising prices quickly absorbed most of the benefit. By the September quarter, Australia was in its 11th consecutive quarter of house price growth – the longest uninterrupted stretch since 2012–15 – and unit prices were rising at more than twice the pace of the previous year.
Since 2019, combined capital city house prices are now around 50% higher, leaving the gap between what homes cost and what households earn as wide as ever. Population growth has continued to outpace construction, with roughly 3.2 additional people for every new home built in recent years, keeping both prices and rents under pressure.
One of the defining features of 2025 was the resurgence of investors, Domain reported.
Once the first cut landed in February, investor lending began to grow far more quickly than owner‑occupier finance. Over just two quarters:
More than four in five investor loans were used to purchase existing dwellings, not new supply.
In a market already struggling with undersupply, this amplified price pressures and highlighted the imbalance built into current settings, which continue to reward investment in existing stock over new construction.
After two years of rapid rate hikes and tight budgets, 2025 was the year many households finally began to shake off the pessimism of the recent past. Rate cuts helped clients feel financially steadier, but most still had to recalibrate expectations.
Faced with affordability constraints, buyers adapted rather than withdrew. Domain’s search data revealed a clear shift toward more flexible or lower‑cost housing options. Terms like “dual”, “granny flat”, “duplex” and “dual living” surged across many cities and regions as borrowers explored:
The combination of renewed demand and tight supply reshaped Australia’s price ladder:
Perth, Brisbane, and Adelaide – once the more affordable alternatives – have solidified their status as higher‑priced markets after years of above‑average growth. Meanwhile, Sydney and Melbourne re‑accelerated as rate cuts filtered through, each recording their strongest gains in more than two years.
The traditional “tier one v tier two” framing no longer fully captures reality. Relative affordability, migration patterns, lifestyle appeal and local economic strength are now reshaping the geography of value – and where brokers can realistically place different segments of their client base.
Since 2022, lower‑priced homes have consistently outperformed premium properties across most capitals as buyers with constrained borrowing power have gravitated toward more attainable entry points, particularly in Perth, Brisbane, and Adelaide.
Momentum in 2025 was also underpinned by policy, Domain said.
The government’s expanded Home Guarantee Scheme – now called the Australian Government 5% Deposit Scheme – launched with unlimited places, higher price caps and no income caps, dramatically widening access for first‑home buyers.
Anticipation of the change influenced behaviour well before it began. Many investors and second‑home buyers brought forward their decisions, looking to transact before a new wave of first‑home buyer demand entered their price brackets.
From October 1, the scheme began reshaping demand more directly, giving brokers:
Yet even with the scheme in place, affordability remained stretched as price growth continued to outpace the benefit of cheaper money.
By the end of spring, the story of 2025 had shifted decisively.
Inflation, which had been easing for much of the year, re‑accelerated, catching policymakers and markets off guard. A fourth rate cut – once heavily expected for December – quickly became unlikely. In the space of a few weeks, expectations flipped from further easing to the prospect that interest rates would now remain on hold well into 2026.
Westpac’s latest Housing Pulse captured this tension, showing the market powering through spring “buoyed by tight on‑market supply, resilient demand, and supportive policy,” while warning that “the outlook is far from settled” as affordability pressures, evolving macro‑prudential settings, labour‑market trends, and the RBA cash‑rate path loom over the next phase.
Earlier cuts, however, had already lowered borrowing costs and lifted sentiment. Listings remained tight, price growth stayed firm in many markets, and policy support – particularly for FHBs – continued to underpin demand.
By the close of 2025, it was clear the year had been a turning point rather than a resolution.
Rate cuts offered relief, not a full affordability reset – and that’s where brokers played a critical role: helping clients adapt, structure smarter loans, and find workable paths into a market where prices continued to rise more quickly than affordability could.
Heading into 2026, the forces that defined 2025 – tight supply, elevated investor interest, powerful policy supports, and an RBA now likely to sit on hold – suggest that demand momentum will carry into the new year.
For mortgage brokers, the task is clear: navigate a more optimistic, but still structurally constrained, market and keep affordability front and centre in every client strategy.
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