Australia’s housing market ended 2025 at a record high, but price growth slowed sharply in December as the prospect of interest rate hikes weighed on the country’s largest property markets.
National home prices rose just 0.1% in December to a new peak of $880,000, leaving values 8.8% higher than a year earlier, according to the latest PropTrack Home Price Index. That equates to a rise of about $82,200 for the typical Australian home over 2025.
“Home price growth was mixed across the country in December. Adelaide, Brisbane, and Perth recorded strong gains over the month, while prices dipped in Sydney and Melbourne,” REA Group senior economist Anne Flaherty (pictured) said.
Combined capital city prices were flat over the month, while regional markets outperformed, lifting 0.4% in December.
Perth, Brisbane, and Adelaide were standout performers in 2025, driving much of the national upswing.
Perth recorded the fastest growth of any capital, with home values jumping 17.2% over the year, or about $148,100. Brisbane was close behind, with prices up 14.6%, leaving the typical homeowner roughly $136,000 better off on paper than a year ago.
Adelaide values climbed 12.8% over 2025, a rise of a little over $100,000, pushing the city’s median price above $900,000 for the first time.
“In contrast, Adelaide was once again the best performing capital city, with home prices jumping 0.8% in December, contributing to an annual rise of 12.8%,” Flaherty said.
Darwin also staged a strong recovery, with prices up 14.5% over the year amid fewer homes on the market, stronger rental demand and increased investor activity.
While values in Sydney and Melbourne remain higher than a year ago, both markets lost steam at the end of 2025.
Home prices in Sydney and Melbourne each fell 0.3% in December, with Canberra also slipping 0.2% over the month. Despite the late‑year declines, Sydney values still rose 6.4% across 2025, delivering a gain of roughly $100,000 thanks to the city’s higher starting prices.
Nationally, the mixed monthly result reflects price falls in Sydney and Melbourne offsetting gains in other states, with combined capitals flat over the month and combined regional areas continuing to outperform.
The December slowdown followed a hotter‑than‑expected inflation reading in November, which halted further interest rate cuts and raised the risk of rate hikes in 2026.
Flaherty said the return of above‑target inflation meant a pause in the easing cycle, but she still expects prices to rise in the year ahead.
“Home prices are predicted to head to new highs in 2026, however the pace of growth is expected to slow," the economist said. "Price growth in 2025 was supported by three rate cuts. This year, no further cuts are expected, and there is a possibility rates could rise if inflation persists.
“While home values are expected to rise to new record highs in 2026, the pace of growth is expected to be slower than in 2025.
Even so, supply pressures are likely to keep a floor under prices.
“Counteracting the impacts of interest rates, however, Australia’s property market continues to be characterised by an imbalance between supply and demand,” Flaherty said. “While the pace of construction activity has picked up, most markets continue to face an undersupply of new homes relative to the level of population growth.”
More affordable parts of the market are expected to outperform in 2026 as federal government support and strong demand push up prices at the lower end.
The government’s expanded first‑home buyer program allows purchasers to buy with a 5% deposit and avoid lenders mortgage insurance, lowering the deposit hurdle and widening the buyer pool.
“The Australian government 5% Deposit Scheme is also likely to support price growth by driving up demand, particularly at the more affordable end of the market,” Flaherty said.
“This policy is expected to drive up demand from first-home buyers, particularly at the more affordable end of the market. As a result, home price growth beneath these thresholds is likely to outpace the market more broadly.”
PropTrack data already shows outperformance in cheaper areas of Sydney and Melbourne.
Values in Sydney’s south west climbed 11.9% in 2025, while the outer south west rose 10.3%, as more buyers targeted entry‑level homes boosted by the 5% deposit scheme.
“It opens up a bigger buyer pool for people who can now get into the market earlier,” Stone Real Estate Macarthur principal Chris Philp told realestate.com.au. “We’ve seen a massive price increase in those entry level properties. There's so many families moving here, but the prices are still incredibly affordable.”
In Melbourne, the north west led the city with 6.8% annual growth, supported by a surge in investor interest that is expected to continue this year.
“We’re getting bombarded by interstate investors, and the buyers' advocates we’re speaking to don’t just have one or two clients on their books, they have a database of buyers looking to buy into Melbourne,” said Barry Plant Taylors Lakes director Andrew Koulaouzos.
However, the 5% deposit scheme has helped first‑home buyers compete more effectively.
“It gave people a bit more confidence that they could go to the next bracket to get something a bit better than what they had envisioned,” Koulaouzos said. “For example, instead of buying a unit they could buy a small house.”
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