According to Domain’s End of Year Wrap 2025 report, the Reserve Bank’s first rate cuts in four years increased borrowing power by up to $73,800, but rapid price growth quickly absorbed these gains.
House prices rose 9 per cent across the combined capitals in 2025, with Sydney, Brisbane, Adelaide and Perth all recording 9 per cent growth, while Melbourne trailed slightly at 7 per cent.
Sydney led the nation with a $150,000 annual increase, while Adelaide officially joined the million-dollar club.
Brisbane overtook Melbourne to become Australia’s second-most-expensive capital city.
Domain’s Chief of Research and Economics, Dr Nicola Powell, said the rate cuts had an unexpected effect on affordability.
“Rate cuts finally arrived this year, but they didn’t solve for affordability. In fact, they actually pushed prices even higher,” Dr Powell said.
The report shows that unit markets surged even harder in cities where affordability pressure was most acute. Adelaide units jumped 16 per cent ($90,000), Brisbane rose 14 per cent ($90,000), and Perth gained 12 per cent ($61,000), as buyers shifted down the price ladder in search of value.
Investor activity surged following the early-year rate cuts, with investor lending jumping more than 20 per cent in two quarters.
This drove their share of new finance above 40 per cent, the highest level in almost a decade.
The investor resurgence created additional challenges for first-home buyers, particularly at the lower end of the market.
Many investors accelerated their purchase plans to beat the anticipated influx of new first-home buyers following the Government’s expanded 5% Deposit Scheme that took effect in October.
Perth, Adelaide and Brisbane, traditionally viewed as more affordable capitals, saw affordability deteriorate at record pace.
Perth is forecast to reach a $1 million median by Christmas, while Brisbane’s strong population growth and tight supply pushed entry-level stock further out of reach.
With prices rising faster than borrowing power increased, buyers adapted their strategies. Domain search data revealed sharp increases in terms such as “dual,” “granny flat,” “duplex” and “dual living” as buyers explored multigenerational living options, supplementary income possibilities, and flexible layouts.
The final months of 2025 brought a shift in market expectations as inflation reaccelerated, eliminating hopes for a fourth rate cut in December.
The RBA is now expected to hold rates steady well into 2026.
Despite this, market momentum remained strong, supported by tight supply, elevated demand, and policy changes that influenced buyer behaviour.
Dr Powell suggested that stable interest rates might help moderate some of the market heat.
“Steady rates may actually help cool some of the late-year heat, particularly as investors compete with first-home buyers supported by government incentives,” she said.
However, she said that fundamental market drivers remain unchanged.
“Even so, the fundamentals aren’t changing. Strong population growth, low vacancy rates and persistent undersupply, made worse by high construction costs, are likely to keep prices buoyant through the first half of 2026.”
