Interest rate cuts fuel cascade of across-the-board property price gains

Interest rate cuts might be sparing borrowers $100 per month but those looking to buy a mid-priced property will be paying almost $6,000 more than they would’ve forked out last month.

The RBA’s move into a rate-cutting cycle after years of cash rate stagnation has put a rocket under the property market.

In May, the median dwelling value rose another 0.5 per cent, with every capital city posting at least a 0.4 per cent increase and some markedly more.

Darwin has broken the shackles after a couple of years in the capital growth doldrums, notching up a 1.6 per cent gain last month, to be 4.3 per cent higher for the quarter and on track for double-digit growth in 2025.

Among the major capitals, it was Perth that reasserted its market dominance with a 0.7 per cent monthly price increase.

Melbourne and Canberra are the only two Australian cities in which prices have slid over the past 12 months but they, along with Adelaide, recorded a 0.4 per cent price rise in May.

“With interest rates falling again in May, we are likely to see a further positive influence flowing through to housing values in June and through the rest of the year,” Tim Lawless, Research Director, Cotality, said.

Despite added momentum forming in the monthly trend, the pace of gains nationally over the past year is at its slowest since the year ending August 2023.

“This slower pace of growth reflects the easing in capital gains through the second half of the year, culminating in the modest fall in values over the three months to January 2025.”

Capital city markets delivered a striking turnaround in comparison to regional markets over the past month, outpointing the regions. The regional markets tripled the performance of the capitals last month, and still remain a clear leader on an annual basis.

The strongest market in the country is regional South Australia, which has gone up 5.8 per cent so far in 2025.

It’s a similar story in regional Queensland, where property prices have doubled the pace of capital cities.

Craig Covacich, Urbex General Manager of Realty in Mackay, said demand is increasing in these areas, particularly from Brisbane buyers priced out of the capital markets and seeking a lifestyle alternative.

“We’re seeing a wave of interest from home buyers seeking value for their dollar, space, and a true coastal lifestyle,” Mr Covacich said.

He made the point that regional Queensland towns all had a different property market profile.

“Unlike some regional areas experiencing investor-driven booms capitalising on a rental accommodation supply crisis, Mackay’s market is underpinned by steady, sustainable growth with a diverse purchaser profile.

“In Mackay, dwelling values have experienced significant growth, with median house prices rising 20.2 per cent over the past 12 months.”

Perth bouncing back

Perth’s return to prominence among the capital cities has seen the median dwelling price hit $813,810, surpassing $840,000 compared to around $600,000 for units and apartments.

Daniel McQuillan, Managing Director, Nu Wealth, said units and apartments had been the Cinderella of the recent real estate boom in Perth, as houses have been much more in demand from buyers.

“Houses have led the charge in price growth in the Perth market over the last four years, with apartments and units lagging.

“That price growth in houses, however, has now started to lag behind that of units and apartments because they are an affordable entry point into the real estate market for first home buyers.

“This is underlined by CoreLogic figures that show during the first three months of 2025, the median price of apartments and units increased by 2.3 per cent, whereas house prices remained stagnant.”

Mr McQuillan said first home buyers are poised to take advantage of the falls in interest rates and gain a foothold in the market by purchasing an apartment in the affordable sub $600,000 price range, as this asset class is now starting to outperform houses in terms of capital growth.

“Many first home buyers have been effectively locked out of the local property market because of the influx of eastern states property buyers into the WA market over the past few years.

“Eastern states investors who were chasing both high rental returns and capital growth, flooded the WA property market over the past four years and were able to outbid local first home buyers because of their higher borrowing capacity.

“These market conditions have become more favourable in recent months for first home buyers as activity by eastern states property buyers in WA has waned because rental yields have begun to moderate due to slowing property price increases and rents,” he said.

Interest rates and price pressures

With so much hinging on interest rates when it comes to the trajectory of property prices, all eyes are on the RBA’s next move.

Canstar.com.au data insights director, Sally Tindall gave buyers some impetus to get into the market sooner than later with her prediction of where rates were heading in the remainder of 2025.

“Fixed rates have been falling fairly consistently this year and we expect this activity will continue as banks price in the increasing likelihood of further cash rate cuts.”

She added that variable home loans retained their advantage over fixed terms.

“CBA’s lowest variable rate is sitting at 5.59 per cent, while its lowest fixed rate is 5.49 per cent, so with just a 0.10 percentage point difference, and the possibility of further RBA cuts ramping up, it’s hard to see many people jumping at the chance to lock up their mortgage for the next three years.

“We expect banks big and small will continue cutting fixed rates over the next few months.

“We’ve already got four lenders with at least one fixed rate under 5 per cent, however, this could well become the norm for banks by the end of the year.”

It’s not all one-way traffic. Keeping some downward pressure on prices are lending policies and regulations that could keep a lid on the exuberance.

Mr Lawless pointed out that since 2023, borrowers with a debt-to-income ratio of six times or higher have comprised around 6 per cent or less of new loan originations.

“Any sign of higher housing-related debt levels could be met with a tighter policy framework for home lending.”

“Affordability pressures are also evident across most housing markets and set to constrain demand to some extent.

“Lower population growth should also quell the accrual of housing demand in the absence of a supply response.”