Home price boom tipped on rate cuts and first-home buyer surge
More first-timers are about to jump on to the property ladder, but they face competition as higher prices entice investors into the market.
Home prices are expected to rise by up to 10 per cent next year as interest rate cuts and expanded government support for first-home buyers drive a surge in demand.
The higher forecasts for 2026 followed an acceleration in monthly price gains that also prompted some of the big banks to double, or almost double, where they think housing prices will land in 2025.
Westpac this week boosted its 2025 forecast to 6 per cent from 3 per cent, and predicted a 9 per cent rise in 2026, up from its previous 6 per cent forecast.
“Near-term forecast changes reflect the significantly stronger signal coming from current conditions, including prices, auction clearance rates and materially tighter ‘on market’ supply,” Westpac’s head of macro-forecasting, Matthew Hassan, said.
AMP chief economist Shane Oliver also upgraded his forecasts and said he expected home price growth would pick up to about 8-10 per cent in 2026, after a rise of about 7 per cent this year.
Dr Oliver said more rate cuts and a surge in first-home buyer demand on the back of the federal government bringing forward its broader low-deposit scheme, as well as the start of its shared equity scheme, were likely to see the pace of gains pick up.
“The rate cuts, combined with still-low unemployment, rising real wages, improving consumer confidence and now the government bringing forward the expanded low-deposit guarantee, all those things point to continued modest growth at least in the short term and some acceleration going into next year,” Dr Oliver said.
He said the government’s decision to fast-track the expansion of the 5 per cent deposit scheme to all first-home buyers added another 1 per cent to his 2026 forecast.
“It will take a few months before people get their loans approved and then that starts to lead into more momentum going into next year than would otherwise have been the case.”
Independent housing economist Cameron Kusher described market conditions as pretty strong. “There’s still very low volume of stock available for sale, although new listings will ramp up in spring,” Mr Kusher said.
“We’ve had three interest rate cuts – that’s going to bring more buyers into the market. From October we’re going to have the home guarantee scheme as well so that’s going to encourage a lot more first-home buyers into the market.”
The Albanese government in August brought forward the date for the home guarantee scheme to be opened up to all first-home buyers to October 1, instead of January, removed income limits and caps on the number of places, and increased property price caps.
Mr Kusher had forecast 6-8 per cent national home price growth for the 2056-26 financial year. “With the home guarantee scheme coming in sooner, it could actually be on the higher side of that, so it might be more 8-9 per cent growth.
“The expectation is still that there’s going to be another interest rate cut before the end of the year, and that will bring more buyers into the market as well.”
Mr Hassan said there was a discernible shift in the housing market. “Buyers are perking up, price growth has lifted, auction clearance rates are rising and supply is tightening,” he said.
Economists at all four major banks have upgraded their predictions in recent weeks, with ANZ upgrading its forecasts for combined capital city housing prices to 5 per cent in 2025 and 5.8 per cent in 2026.
NAB boosted its 2025 forecast to 6 per cent, from 3.5 per cent, while still expecting growth of about 6 per cent over 2026.
CBA lifted its 2025 prediction to 6 per cent, from 4 per cent, and dropped next year’s number to 4 per cent instead of 5 per cent, noting this home price upswing was still expected to be relatively modest and taper out in 2026.
Dr Oliver said the upswing in prices was likely to be constrained by poor affordability, rates remaining relatively high compared to pandemic record lows and slowing population growth.
Cotality data showed national housing values rose by 0.7 per cent in August, the strongest monthly gain since May 2024.
Rival data from PropTrack had a 0.5 per cent increase to a record $835,000 national median value.
First-home buyers v investors
The fresh influx of first-home buyers will be competing with investors for the same housing stock, Mr Kusher said.
“You’re going to have all these first-home buyers coming into the market from October and you’re going to have them competing with investors for similar stock as well. So that’s going to push prices higher at the same time.”
Dr Oliver also flagged greater competition as investor optimism and market activity were boosted by price growth.
“Investors are often driven by price gains so when they start to see prices pick up, that might encourage more investors into the market.
“You’ve got first-home buyers being motivated by the start up of the low deposit scheme and there’s the shared equity scheme, which is scheduled to start later this year as well.
“Investors are motivated by expectations for price growth and when they see more demand out there, they think ‘Maybe I better get in as well’, so you could have a fairly intensified period of competition for property.”
The latest Australian Bureau of Statistics data showed a 3.5 per cent rise in the number of new investment loans in the June quarter, outpacing a 0.9 per cent increase in owner-occupier loans.
“It’s not a bad environment for investors,” Dr Oliver said.
“They’ve got rates coming down, rental growth looks to be stabilising and starting to pick up, vacancy rates are still low, and they benefit from price growth.”
Like home prices, rental growth has accelerated this year. National rental growth picked up 0.5 per cent in August, the largest month-on-month rise since May 2024, according to Cotality.
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