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House prices set to surge by June 2025

House prices will rise almost 15 per cent nationally by June 2025, with limited property supply, heavier migration and anticipated interest rate cuts fuelling the growth.

The significant prediction comes from big four accounting firm KPMG, in its Residential Property Market Outlook, September 2023.

Over the next nine months, KPMG tips house prices will climb 4.9 per cent, before a 9.4 per cent surge in the year to June 2025.

Apartment prices are also tipped to jump, with an average rise of 3.1 per cent forecast between now and June 2024, before a further six per cent climb 12 months later.

KPMG Chief Economist Dr Brendan Rynne said despite high interest rates, constrained supply would likely influence property prices short-term and fuel continued price gains in most markets this financial year.

“House and unit prices will then accelerate further in the next financial year as dwelling supply continues to be limited, due to scarcity of available land, falling levels of approvals and slower or more costly construction activity,” he said.

“The supply issue will combine with several other factors to push assets prices up – higher demand due to heavier migration; anticipated rate cuts moving into FY25, and potentially relaxed lending conditions; high rental costs pushing renters to look to buy instead; barriers to developers building new homes; foreign investor demand picking up again; along with the longer post-pandemic demand for more space as people continue to work from home.”

Perth house prices are tipped to rise the most, up 8.4 per cent, this financial year, while Hobart will overtake other cities in FY25 with house prices forecast to increase 14.2 per cent.

Hobart units will also outperform the other capital cities with prices rising 18.7 per cent by June 2025.

“There are some factors pushing the other way – the main one being mortgage stress,” Dr Rynne said.

“First-time buyers now need to use around half their earnings on mortgage payments – a significant rise from a third just three years ago. 

“We estimate around $350 billion of mortgages, or half of all fixed-rate credit will expire this year – covering 880,000 Australian households. 

“The remaining 38 percent of fixed rate credit, which includes about 450,000 loan facilities, will expire in 2024 and beyond. 

“Some homeowners who previously locked in low rates might be unable to pay – and won’t be able to refinance to a lower and competitive rate.

“But on balance the factors pushing prices up will more than counter those restraining them. Market dynamics vary across different cities so there will be considerable regional variations.”

Regional variances have been significant in the three years since the start of the global pandemic.

Adelaide house prices outperformed the national average, rising 40 per cent between June 2020 and June 2023, with no sign of rising interest rates affecting the market.

In contrast, after sharp price rises during the pandemic, Sydney and Melbourne house prices dropped 1.3 per cent and 1.4 per cent in the year to June 2023.

Dr Rynne said there had been other important changes since the height of Covid, including shrinking housing approvals and rising building material costs now constraining housing supply.

He said migration, which collapsed during the pandemic, will rise by more than 400,000 people this year, while foreign investment is steadily recovering. 

The report also highlighted that rising rents can push property prices up as renters look to buy a home.

“Based on our projections for new dwelling completions and the Treasury’s population forecasts, we estimate that annual rent growth will be 5.6 per cent over the next two years – which is 2.5 per cent higher than the long-term average of 3.1 per cent,” Dr Rynne said.

“We assess that dwelling completions would have to be around 76 per cent higher than is currently forecast for those rental costs to be pulled back to normal levels.

“Either that or population growth from migration would have to be brought down to considerably lower levels than at present – which would mean short-term costs over-riding long-term economic benefits.” 

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.