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ANZ Bank says it believes the current slump in housing price growth is likely to continue until the Reserve Bank of Australia begins cutting official interest rates from its 13-year high of 4.35%.

 

The bank’s economics team says it is expecting only two 0.25% cuts this year, in February and August 2025, taking the cash rate to 3.85%. 

 

“We think the RBA will take a cautious approach in dialling down the restrictiveness of current policy settings, rather than February being the start of an aggressive easing cycle,” ANZ says.

 

“While this should support sentiment, particularly in cities like Sydney and Melbourne, it is unlikely to materially boost prices immediately.” 

 

As a result, ANZ forecasts that dwelling prices in Sydney and Melbourne will end 2025 up just 0.7% and 0.1% respectively.

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“In Perth and Brisbane, where demand continues to outpace supply, price growth should remain robust in 2025,” say ANZ economists Madeline Dunk and Catherine Birch, while “affordability constraints are likely to restrict Adelaide price growth in 2025.”

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2026 and the multi-speed market

 

ANZ’s Madeline Dunk and Catherine Birch say 2026 will “likely be dominated by two themes: affordability and supply.” 

 

The economists say Australia’s long-term challenges with housing undersupply will place upward pressure on prices. 

 

That will see a turnaround in the markets of Sydney, Melbourne, Hobart, Canberra and Darwin.

 

Dunk and Birch say Sydney’s expensive real estate may mean that the Harbour City “may underperform slightly” in the upturn, clocking up 3.7% growth in 2026.

 

However, the economists forecast the strongest capital city price growth in 2026 will be 4.9% in Melbourne, which they say “should benefit from an affordability-related demand boost.” 

 

According to CoreLogic, Melbourne’s sluggish value growth has seen it slip several spots over the last year to become Australia’s sixth most expensive (or third cheapest) capital city with a median dwelling value of $774,093, with only Hobart and Darwin cheaper.

 

Over the long term, Melbourne’s median home price has usually been equivalent to about 78% of Sydney’s median price.

 

The Victorian capital’s lackluster price growth in recent years has seen that gap blow out to 65%.

 

To savvy investors who look at long-term trends, that means Melbourne property is currently about 13% under-valued. 

 

Madeline Dunk and Catherine Birch believe a continuing lack of housing supply in the face of strong demand will continue to support home price growth in Brisbane and Perth, although the rate of that growth will continue to slow.

 

“Meanwhile, Adelaide, Hobart, Canberra and Darwin are expected to record subdued growth of 2.5% or less,” they say.

 

ANZ says RBA rate cuts could have a stronger than expected impact on demand than its economists have anticipated. 

 

However, the bank says it is also possible that the expected shallow nature of the interest rate easing cycle “fails to shift the market out of its current slump.”