Australia’s housing market ended 2025 exceptionally strong, with national dwelling prices reaching $959,000 and rising around 12% over the year.
Ray White chief economist Nerida Conisbee (pictured) says that level of performance is rare.
“To put 2025 in context, you have to go back to the COVID housing boom to find a year this strong, and outside that once-in-a-generation period, national price growth has not reached these levels at any point in the past 20 years of available data,” Conisbee said.
Price growth strengthened through the second half of 2025 and was far from uniform.
More affordable markets recorded the strongest gains, while the priciest cities lagged. Perth, Brisbane, and Adelaide, along with many regional markets, delivered annual growth well above the national average. Sydney and Melbourne still posted positive annual growth, but momentum softened towards year end, with prices slipping slightly on a monthly basis.
“This divergence is a key feature of the current cycle,” Conisbee said.
Conisbee says strong house price growth can coexist with a cost-of-living crisis because the people setting prices are not the households under the greatest financial stress.
“Cost-of-living pressures are widespread, but they are not evenly distributed,” she said. “Some households are struggling with cost of living, while others are constrained mainly by deposit requirements, and others again are relatively insulated because they already own property and hold significant equity.
“Housing markets are driven by the marginal buyer, not the average household, and that marginal buyer today is more likely to be higher income, dual-earner, or equity-rich. Or helped by government incentives.”
Many active buyers have stable incomes, secure employment, and existing equity, allowing them to adjust spending elsewhere rather than leave the market entirely. This uneven impact helps explain why prices can keep rising even while confidence and sentiment surveys remain subdued.
A key feature of this cycle is that price growth is being driven from the lower and middle segments of the market, not the top end.
“This is where homes remain more attainable, even with higher interest rates, and it is also where government support is most concentrated,” Conisbee said.
First-home buyer incentives, deposit guarantees, shared-equity schemes, and stamp duty concessions are all targeted at cheaper properties. Conisbee notes these policies do not increase how much households can comfortably repay each month, but they do increase the number of households able to transact. As a result, demand at the entry level has remained resilient and, in many markets, competitive.
While cost-of-living pressures are real, they are impacting some people far more than others. Those with secure jobs and equity have been better able to absorb higher costs and continue buying.
“Historically, housing markets weaken most sharply when job security deteriorates, not when living costs rise on their own,” Conisbee said.
On the supply side, elevated construction costs and feasibility challenges continue to limit new housing delivery. In many markets, the cost of replacing an existing home now exceeds the value of that home once land, materials and labour are taken into account.
“When replacement costs rise faster than prices, existing housing stock becomes more valuable by comparison. This dynamic alone places upward pressure on prices and reduces the likelihood of meaningful price falls.”
Industry groups also argue that Australia’s housing problems are being driven more by a structural shortage of homes than by tax settings alone, with undersupply and heavy housing taxes cited as key reasons prices and rents remain under pressure.
Looking ahead, Conisbee expects prices will still rise, but not as strongly as in 2025. Even without further rate hikes, serviceability is becoming more challenging. Lenders are assessing borrowers at interest rates well above those they actually pay, which caps borrowing capacity and limits how far prices can be pushed.
“There is also an external risk to consider," the Ray White economist said. "Ongoing challenges to US central bank independence have the potential to lift global borrowing costs. If global funding becomes more expensive, Australian borrowing costs can rise independently of decisions made by the Reserve Bank. That would further constrain serviceability and dampen price momentum.”
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