Where house prices will rise fastest during 2025

House prices are set to grow 3.3 per cent across Australia this year, a forecast predicts, but experts warn the sluggish growth will do little to help affordability woes that have weighed down the market.

The KPMG forecast was one of the more pessimistic predictions for the Australian property market in 2025 which chief economist and partner Dr Brendan Rynne said was mostly due to weakening conditions towards the end of last year.

He predicted units would outpace houses at 4.6 per cent growth because buyers were showing a preference for the lower-priced property type, given borrowing capacities had been slashed by high interest rates.

“It’s our acknowledgement that many of the housing markets are seeing weakening price growth, and many are seeing falls in prices,” Rynne said.

“Towards the end of the last year, it’s the continuation of high mortgage rates and also the 3 per cent lending buffer … that’s meant the number of people being able to afford new home loans and participate in the market is starting to come off.”

KPMG predicted Sydney house prices would grow by 3.3 per cent over 2025, Melbourne’s by 3.5 per cent, Brisbane’s by 3.1 per cent and Perth’s by 4 per cent.

Units would grow 5 per cent in Sydney, 4.7 per cent in Melbourne, 4.1 per cent in Brisbane and 5 per cent in Perth.

The forecast growth would be relatively sluggish and was caused in part by a lack of affordability, prompting buyers to hold back to wait for a Reserve Bank rate cut to boost their borrowing capacities, Rynne said, though he thought the expected effect was overstated.

“You’ve got to remember that the rate cut we’re talking about is 25 basis points (0.25 percentage points), right? It’s not going to significantly resolve the [issue with] mortgage payments that people are going to have to pay still,” he said.

“The thing to recognise is they’re still high prices. If something is $100 and people are struggling with it, if it’s $103 tomorrow or later on in the year, my bet is they will struggle to afford it then.”

Rynne warned that not enough homes had been built for the Australian population and said more supply was needed.

“We have massive concerns about the housing market,” he said. “It’s not a new problem, it’s been a problem building for decades.

“Housing is the No.1 policy problem in this country.”

Rynne expected Sydney and Melbourne’s house prices would fall until rates were cut, and any growth over the year would be recorded after the cash rate fell.

Other forecasts predict house prices will rise between 3 per cent to 6 per cent over 2025; ANZ late last year revised their forecast down from 5 per cent to 6 per cent growth to 2.7 per cent, citing weakening markets in Sydney and Melbourne.

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ANZ economist Madeline Dunk agreed buyers were less active in anticipation of rate cuts. “But I would say we’re only expecting two rate cuts,” she said. “So it’s not really going to shift the dial in the way that many people are anticipating.

“It should push some of those markets like Sydney and Melbourne in particular out of their slump, but it won’t lead to a strong increase in prices.”

Sydney house prices would grow 0.7 per cent, Melbourne’s 0.1 per cent, Brisbane’s 5.8 per cent and Perth’s 8.5 per cent, the ANZ forecast predicted.

Two rate cuts on a $500,000 mortgage would reduce monthly repayments by only $151, previous RateCity modelling showed.

Dunk said house price growth could remain subdued for years because prices shot past affordable levels during years of ultra-low interest rates and would be comparably much less affordable with higher interest rates.

“Rates are going to stay higher for longer … [with cuts] you’re going to 3.5 per cent, which is a big difference from where we were in the pandemic, so a lot of people are really hoping this will stimulate the market, and yes, it will give a bit of a boost, but nothing like what we saw in the pandemic.

“I think affordability will be something that really weighs on the market in the long term.”

Independent economist Besa Deda agreed any growth in Sydney and Melbourne this year would be subdued.

“You could see a bit of a lift come through dwelling prices if rate cuts come to fruition and financial markets are fully priced to expect rate cuts by April,” she said. “With rate cuts, you might see affordability to improve and there might be a bit of room for house prices to lift.

“[But] unless you’re getting an improvement in your earnings, your borrowing capacity would be impacted by the level of interest rates.”