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Melbourne to lead housing growth as prices set to rise nationwide

Australian house prices are set to continue their upward trajectory, with Melbourne expected to lead major capitals with a 3.5 per cent growth in 2025.

According to KPMG’s latest residential property market outlook, the national housing market is forecast to see a 3.3 per cent increase in house prices over the next 12 months. 

While unit prices are expected to outperform houses, growing by 4.6 per cent as affordability constraints push buyers toward apartments.

Perth has emerged as the strongest performer in the house price category, with a predicted 4 per cent growth, while Sydney is expected to see a 3.3 per cent increase, building on its 2.5 per cent gain from last year.

KPMG Chief Economist, Dr Brendan Rynne, said the market has shown remarkable resilience despite challenging conditions.

“While 2024 was a year of high interest rates and inflation and subdued consumer sentiment, the housing market withstood all those factors and still provided strong price growth, due to demand outstripping supply,” Dr Rynne said.

Source: KPMG

The report indicates a shift in market dynamics, with unit prices expected to modestly outpace house prices over the next two years, driven by affordability constraints in capital cities.

For the rental market, some relief may be in sight for tenants, with KPMG forecasting annual rent growth to moderate to between 3.5-4.5 per cent over the next two years.

Looking ahead to 2026, the outlook becomes even more positive, with national house prices predicted to surge by 6 per cent, led by Sydney at 7.8 per cent and Melbourne at 6 per cent.

“Despite affordability and availability issues and a delayed interest rate cut, increased investor sentiment, and anticipated relaxed lending conditions will help support modest price growth in 2025, and then stronger growth next year,” Dr. Rynne said.

“A downward shift in rental prices will help restrain property growth. 

โ€œThe high rents in recent years have pushed more renters to look to buy instead which has added to demand and hence prices.”

“This is one of the factors we see contributing to a more balanced and sustainable rate of price growth over the next one to two years, and more aligned with long-term averages.

“We are starting to see building approvals moving in the right direction to meet the current supply shortages, which was driven largely by robust population growth.โ€

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.