Major bank tips stunning turnaround in capital city property prices

One of the big four banks has released some stunning property price forecasts for the nation’s capital cities that flip the current situation on its head.

Melbourne’s sluggish property market is predicted to exceed all other cities in 2025 and 2026, while Darwin’s expected 14.3 per cent growth this year will slide to 2.4 per cent by the end of 2026.

Adelaide’s run among the top three alongside Perth and Brisbane over the past few years is also tipped to end, with only Canberra and Hobart having lower capital growth rates over the next couple of years.

They are among the forecasts released by ANZ in its Australian Housing Outlook report that will mark a massive transformation of the real estate market nationally.

The sustained reign of the three mid-sized capitals would give way to a return of the country’s two largest property markets, Sydney and Melbourne, as the powerhouses of the national market.

ANZ Research has upgraded its housing price forecasts and now expects capital city prices to rise 5.0 per cent in 2025, 5.8 per cent in 2026 and slowing to 4. 8 per cent the following year.

The report attributes its relatively modest annual price growth, although it would remain well above inflation, to the already high cost of property.

“We think affordability constraints will prevent a sharp upswing in price growth.

“Cheaper properties are recording stronger price growth, with those in the bottom price quartile up 5.7 per cent year-on-year in July versus 1.2 per cent for those in the top quartile.

“We expect Melbourne to experience an affordability-driven boost in 2026, while Adelaide may struggle given the 76 per cent rise in prices over the past five years.”

That affordability argument did not explain why Sydney prices were forecast to grow faster than all cities except Melbourne.

It was the decline in interest rates that was expected to propel those two markets. Both historically outperform other markets when interest rates are heading south.

“In previous (interest rate) easing cycles, Sydney and Melbourne prices have risen by 8.0 per cent and 7.0 per cent on average over the first year, compared to a 6.1 per cent rise in the capital cities,” the report noted.

“If we exclude the post-GFC easing cycle (as many households were deleveraging at that time), capital city prices have risen 7.4 per cent on average over the first year of easing cycles versus 9.4 per cent in Sydney and 7.9 per cent in Melbourne.”

The Reserve Bank’s interest rate cut on Tuesday (12 August) offers some much-needed relief for prospective home owners struggling to enter the market. Whether that relief is erased by property price hikes is yet to be seen.

REIA President, Ms Leanne Pilkington, said the reduction in the official cash rate is a positive step towards improving housing affordability and encouraging greater activity among first home buyers.

“While this will not solve all the affordability challenges overnight, it signals the RBA’s recognition of the difficulties many Australians face when trying to purchase their first home.”

Ms Pilkington also noted recent figures indicating that new owner-occupier first home buyer loan commitments fell by 4.2 per cent in the March quarter, with the total loan value dropping 3.2 per cent, underscoring the ongoing pressures on housing demand. 

“Although rental pressures have begun to ease, borrowing costs remain a significant barrier for many.”

Industry analysts suggest the interest rate decision could be the turning point for the housing sector in 2025, with the combination of lower borrowing costs and pent-up demand expected to drive stronger sales activity in the coming months.

Brad Duggan, CEO, Metricon, said visits to its display homes pointed to renewed market confidence that would now be boosted further.

“The combination of lower borrowing costs and pent-up demand expected to drive stronger sales activity in the coming months.

“The cut is also likely to spur increased competition among lenders, giving buyers and refinancers more bargaining power at a time when sentiment is shifting rapidly back towards growth.”

Mr Duggan emphasised that rate cuts alone are not enough to fix the housing sector’s deeper challenges.

“To sustain this momentum, we need urgent action on planning and approval delays, land supply, infrastructure investment, and building workforce capacity,” he said.

Loans, debt and supply

Across the capital cities, new listings were down 12 per cent year-on-year in July and total listings were down 8 per cent. Stock is particularly constrained in Hobart, with new listings down 25 per cent and total listings down 29 per cent in July.

This may be due to the softer price outcomes in Hobart, with prices 10.4 per cent below the 2022 peak.

ANZ’s researchers said new listings in Perth are down 16 per cent over the past 12 months, although total listings are only down 1 per cent compared to last year.

“We think the low level of supply is keeping the market tight and supporting prices.

“That said, supply should pick up as we move into spring selling, particularly if the RBA cuts rates as we expect.”

The RBA’s interest movements have an outsized impact on the property market in Australia compared to other countries due to its high proportion of variable rate loans over the fixed variety.

Australia’s high household debt is also expected to add downward counterweight pressure on house prices.

With Aussies among the most indebted people in the developed world, limits on further borrowing capacity eventually arise.

Australia’s collective debt is more than double the European average and is 12 per cent above the value of the country’s entire economy.

Most of that debt is in mortgages.

The ANZ forecasts may come to fruition but any major economic shocks could leave indebted Australians in a spot of bother and the property market looking at an entirely different scenario.

But for now, population growth, supply shortages and increasingly manageable repayment demands are doing the heavy lifting.