Property prices set to bounce, but will apartments come along for the ride?

Even without a widely expected rate cut, property price forecasts are being upgraded. But the jury is out on the prospects for apartments.

Economists are upgrading their house price forecasts.

You can now listen to The Australian's articles. Give us your feedback.

You can now listen to The Australian's articles.

Property experts are rewriting forecasts for house prices with stronger results expected for standalone homes, but the jury is out on prospects for apartments.

The price growth forecasts for 2025 and 2026 now sit close to 6 per cent per annum.

The upgraded forecasts have been pencilled in despite the RBA’s decision not to cut rates last month, with a vote of nine to three in favour of leaving rates unchanged.

A lift in sentiment across the residential sector was signalled earlier in the year when National Australia Bank’s first quarter report on the residential market noted sentiment had rallied over the three months to March.

NAB’s closely watched residential property market index rose sharply after falling for the previous three quarters.

“Sentiment is now positive across the country,” explained NAB’s economics team.

More recently, trading in financial markets suggests mortgage rates may still fall by up to one per cent from today’s levels to settle closer to 5 per cent by early 2026.

But typically, the improved outlook is reserved for detached houses.

Speaking to The Australian’s The Money Puzzle podcast, Bank of Queensland chief economist Peter Munckton said the pace of growth picked up in the first half of the calendar year.

Bank of Queensland economist Peter Munckton.

“I think the cities that underperformed in recent years (Melbourne and Canberra) will see the strongest growth over our forecast period,” Mr Munckton said.

Mr Munckton lifted his outlook for nationwide house prices from 5 per cent to 6 per cent for 2026, while leaving his 6 per cent prediction for calendar 2025 unchanged.

But Mr Munckton, in common with many in the market, is sceptical about the outlook for units and apartments.

He said over the last two property cycles, when standalone prices initially ran ahead of apartments, the gap later closed as apartments enjoyed a period of above-average performance, catching up with more expensive standalone homes.

Apartment owners and investors have been regularly hit with losses and below par returns for the past decade, according to a recent report from the Cotality group.

The research house pointed out that one in five apartments sold in Melbourne have been sold at a loss.

Similarly, almost 90 per cent of all loss-making property sales in Sydney have been from apartments.

In fact, over the last decade standalone homes have literally done twice as well as units, rising 80 per cent against 38 per cent.

“If you go back the last 30-plus years, there’s been about three times when standalone houses average price increased a lot versus the average unit price. And then in the following years there was a period where units did at least as well as standalone houses, or maybe someone outperformed,” Mr Munckton said.

“This is the third time we’ve had standalone houses clearly outperform the standalone units. And I suspect at some point in time, we might get the units outperforming again. But if you look closely more and more of the dwelling stock is becoming units just because of the lack of land and the expense of the land,” he said.

“Moreover, the fact that it’s happened two times in the past doesn’t mean it’s got to happen the third time.”

Mr Munckton also points out that a key part of the outperformance of standalone dwellings likely reflects the significant trend of working from home, which may have permanently increased the demand for bigger dwellings.

Certainly, it won’t take much more from here for Mr Munckton’s 6 per cent forecast for calendar 2025 to be correct.

Australian dwelling price growth was up by 5 per cent in the first six months of the year.