ISCOVER
Two of the big four banks are tipping stronger gains on home prices as lower interest rates and supply constraints drive prices upwards.
The Commonwealth Bank of Australia (CBA) and Australia and New Zealand Banking Group (ANZ) have both upgraded their home price forecasts for the year, as interest rate cuts, tight supply, and affordability constraints fuel price gains.
On Monday (11 August), ANZ revised its house price growth forecast, now expecting state capital city housing prices to lift 5.0 per cent in 2025 and 5.8 per cent in 2026. As recently as February, ANZ economists were forecasting capital city housing prices to grow just 0.9 per cent in 2025 and 3.8 per cent in 2026.
Although the major bank’s research team cautioned that it expects the pace of growth to slow in the smaller capitals like Perth and Adelaide.
ANZ highlighted that state capital city housing prices are up 2.8 per cent so far this year and have risen 3.0 per cent since the Reserve Bank of Australia’s (RBA) easing cycle began in February 2025.
Housing prices have lifted 0.6 per cent month on month for three consecutive months, according to ANZ Research, with growth annualising at around 7.4 per cent over this period – well above the 10-year average, suggesting housing prices will likely continue to rise.
CBA economists noted that home prices are climbing faster than expected this year, helped by interest rate cuts, stronger household incomes, and limited housing supply.
The major bank is tipping prices to rise 6 per cent in 2025 (up from 4 per cent) and 4 per cent in 2026 (down from 5 per cent).
CBA said its forecasts were conditional on two further 25-basis-point rate cuts in August (with a rate decision announced this afternoon) and again in November this year.
“The housing market is picking up thanks to rate cuts, but there are headwinds, so we’re not expecting as big a lift as we’ve seen in the past,” CBA chief economist Luke Yeaman said.
“Even though incomes are improving, a shallow rate-cutting cycle, slower migration and stretched housing affordability means prices probably won’t rise as much over the next year.”
Why will house prices keep rising?
Housing price growth began reaccelerating in February when the RBA began its most recent rate-cutting cycle.
Since February, home prices have lifted by 3.1 per cent, after a relative slowdown that saw prices in both Sydney and Melbourne drop in the four months prior.
With a further rate cut widely expected for later today, many economists are forecasting further price hikes as lower rates stimulate growth.
A relative shortage in home supply is also keeping the market tight and supporting prices.
ANZ economists noted that new home listings are down more than 10 per cent year on year, and total listings are about 29 per cent below the 10-year average.
Across the capital cities, new listings were down 12 per cent year on year in July, they added, while total listings were down 8 per cent.
In the medium term, housing undersupply will continue to place pressure on prices, particularly in areas where population growth is strong, ANZ Research stated.
Cheaper properties are seeing faster price growth, with tight affordability expected to drive stronger gains at the lower end of the market, according to ANZ economists Madeline Dunk and Adam Boyton.
“We think the low level of supply is keeping the market tight and supporting prices. That said, supply should pick up as we move into spring selling, particularly if the RBA cuts rates as we expect,” ANZ Research said.
CBA economists Luke Yeaman and Lucinda Jerogin also flagged how labour shortages, high building costs, and slow planning approvals are holding back new housing, putting upward pressure on house prices.
They added that the “constraints holding back housing supply aren’t going away”, and that a large pipeline of unfinished work would contribute to higher prices.
A combination of tight supply and rising prices will also likely exacerbate housing affordability despite easing mortgage costs, CBA research noted.
Research from Cotality released last week showed a similar pattern of home values growing in July, marking the sixth straight month of gains, with the uptick aligning with the RBA’s February rate cut decision.
[Related: Capitals drive sixth straight month of home price gains]
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