Article written by Matthew Hughes, Capital Property Advisory.
As we approach the end of 2025, Australia’s property market continues to show remarkable resilience and renewed momentum. Despite a year marked by shifting economic signals, regulatory changes and uncertainty around the direction of interest rates, the housing sector has surprised on the upside – with national values rising for ten consecutive months and buyer demand strengthening across many segments.
But beneath the surface, this is not a uniform market. The policy environment, migration trends, and severe supply constraints are reshaping the landscape unevenly. Perth continues to lead on raw price growth due to record-low listings. Melbourne, after years of lagging the nation, is now emerging as one of the most compelling value markets in the country. And at the national level, the Federal Government’s expanded first-home-buyer scheme is injecting even more demand into already tight entry-price markets.
For investors and homebuyers alike, this is a market that rewards research, diligence and sound strategy – not speculation. Let’s break down what’s happening.
National Overview: A Synchronised Upswing, but Not a Simple One
National home prices continued their upward trajectory through October and early November, supported by a rare combination of factors: population growth, rental shortages, rising household formation, and – perhaps most significantly – a chronic lack of new supply in most locations.
As we predicted, the expanded federal first-home-buyer scheme, which took effect on 1 October, has added fuel to the fire. With income caps removed, property price caps lifted, and no limit on uptake numbers, the scheme has unlocked a cohort of buyers who were previously priced out or forced to wait. In entry-level segments, this has translated into tighter competition, faster selling times, and a clear pickup in price pressure.
However, it’s the supply side that remains the defining feature of this cycle. Dwelling completions remain well below what’s required to keep pace with migration, construction pipelines are constrained by high costs and labour shortages, and national listings are materially lower than historical averages. When structural undersupply meets a policy-driven rise in demand, prices rise – even without further interest-rate cuts.
Interest Rates: The Easing Cycle Has Stalled
The RBA cut rates three times earlier this year, but the environment has shifted. At its December meeting, the Board held the cash rate at 3.60% amid signs that inflation is proving sticky at the upper end of the target band. Strong recent employment data reinforced the case for caution rather than easing.
Financial markets have taken note. Expectations of further near-term rate cuts have faded considerably, with only a modest 25-basis-point reduction priced in by mid-2026 – and many economists now predicting no further cuts at all unless the economy slows more sharply than forecast.
This is important context for buyers. The next phase of this cycle will not be driven by cheaper money but by where scarcity and value intersect.
Perth: A Market Tightening Even Further
Perth remains one of the country’s strongest-performing markets, and the reasons are clear:
- Record-Low Listings
Listings across Perth remain around 40–45% lower than the same time last year. Many sellers are reluctant to list because they fear not being able to secure their next home – a cycle that further constrains supply and keeps upward pressure on prices. - First-Home-Buyer Scheme Adding Demand Where Stock Is Scarce
With the scheme’s new price caps, more Perth properties fall within eligibility thresholds, particularly in the $600k–$800k range. This has intensified competition in what was already the tightest part of the market. - Fundamental Drivers Still in Play
Western Australia continues to attract population growth, employment remains strong, and the rental market remains exceptionally tight. Rental yields remain comparatively higher than the east coast, adding an investor-friendly dimension. - Moving from “Rebound” to “Mature Growth”
Perth is no longer an undervalued recovery market – it’s a growth market driven by structural scarcity. That doesn’t mean the opportunity has passed; it means investors need to be more selective. Not every suburb will outperform from here.
From our perspective, Perth still represents excellent long-term potential, but only with disciplined suburb selection and asset choice.
Melbourne: The Best Value Play in Australia Right Now
While Perth has dominated headlines, Melbourne has quietly become one of the smartest strategic opportunities in the country.
After several years of underperformance, Melbourne is now showing clear signs of a fundamental resurgence:
- The Value Gap Has Been Too Wide
Melbourne remains one of the most affordable of the mainland capitals relative to its size, wages, infrastructure, and long-term performance. Investors effectively pay less for the same (or better) fundamentals than in Sydney or Brisbane. - Buyer Activity Is Lifting – and So Are Auction Results
Clearance rates have risen into the high-60s on strong auction volumes, a clear indicator that demand and sentiment are returning. This is not froth – it’s early-cycle recovery. - The First-Home-Buyer Scheme Is Boosting Liquidity
While Melbourne’s entry-level market has been subdued in recent years, the expanded scheme is changing that dynamic. More buyers at the bottom end improves turnover through the whole ecosystem. - Early-Cycle, Not Late-Cycle
Unlike Perth or Brisbane, which are in more mature stages of their price cycle, Melbourne still has “catch-up” potential. Investors who enter now are positioning ahead of the curve, not chasing the tail of a boom.
In my view, Melbourne represents the best value in Australia right now for strategic, medium-long term investors. Not because it’s the fastest-growing market today – it isn’t. But because it has the greatest upside potential relative to current pricing.
Final Thoughts
As we close out 2025, the Australian housing market is proving once again that structural fundamentals matter more than short-term fluctuations. Entering 2026, we expect price growth to continue – but unevenly and with an even greater premium on good asset selection.
Perth remains one of the most supply-constrained markets in the country and continues its strong upward trajectory. Melbourne, on the other hand, is emerging from a multi-year period of underperformance with compelling value and early-cycle momentum – and, in my view, stands out as the most attractive strategic play for investors willing to look beyond headline growth rates – provided your investor profile accommodates a slightly lower yielding asset.
For buyers, investors and advisers, the key is clarity: knowing why a market is moving, how long its fundamentals will remain supportive, and where true value still exists. If you can align those pieces, the opportunities in this market are exceptional. Contact the CPA team today if you would like to learn more.
