THE PRACTITIONER'S COMPANION
Tuesday 11 February 2025

Price rises on cards for next two years, big four consultancy firm says

House prices will rise by 3.3% over the next 12 months and by a stronger 6% in 2026 - with unit prices outpacing houses, according to KPMG.

3 min read
Dr Brendan Rynne

HOUSE prices will rise by 3.3% over the next 12 months and by a stronger 6% in 2026, according to KPMG.

The firm’s Residential Property Market Outlook is also predicting units and townhouses will grow by 4.6% in 2025 and then 5.5% the following year.

Overall, house price growth this year will be down on 2024, which saw an average 5.1% rise nationally.

Units will be consistent with last year’s average 4.5% rise.

Price growth will be more pronounced in the second half of 2025, aligning with the interest rate cuts KPMG believes will start by the end of the second quarter.

In 2026, where house price growth will be higher, Sydney will reclaim top spot on 7.8%, with Melbourne and Adelaide next in line on 6.0% and 5.6% respectively.

KPMG believes unit prices will outpace house prices over the next two years – largely driven by ongoing affordability constraints, particularly in capital cities. 

Dr Brendan Rynne, KPMG Chief Economist, said: “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.

“Even the much-anticipated ‘fixed-rate cliff’ – the transition of mortgage holders off lower fixed rates to higher variable rates – had only had a mild impact and households generally coped well with the rate rises, due to a robust labour market and Australia’s historic low unemployment rate.

“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. 

“Construction costs are also starting to moderate. 

“However, this still means only a limited translation of increased approvals into actual housing completions in 2025 and 2026 due to the time lag inherent in the process from approval to completion and the lack of feasibility. ​

“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.”

For non-owners, there may be some relief.

While rental price growth moderated slightly from its peak of 7.8% in March 2024, to 6.7% in September, the strong rental price growth figures continue to reflect low vacancy rates and a tight rental market.​

KPMG expects annual rent growth will be around 3.5–4.5% over the next two years based on its projections for new dwelling completions and Treasury’s population forecasts, which have normalised from the recent migration boom. ​

Dr Rynne said: “A downward shift in rental prices will help with restrain property growth. The 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. But the lower rates established by the end of 2025 will see improved sentiment among buyers and investors, maintaining market confidence and seeing prices rise again in 2026.” ​

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