Navigating the Shifting Tides: An Analysis of the Current Australian Property Market (Q3 2025)

This analysis will dissect the key forces at play. These include the RBA’s cautious easing cycle, driven by moderating inflation; the emergence of a clear two-speed market, with the recovery in Sydney and Melbourne gathering pace while the formerly booming markets of Brisbane and Perth face potential moderation; the persistent tension between low housing supply and steady buyer demand, which continues to place a floor under prices; and the stable regulatory environment, with the Australian Prudential Regulation Authority (APRA) maintaining its prudential guardrails as a crucial counterbalance to monetary easing. The primary value for brokers this quarter lies not in predicting a universal boom, but in understanding and articulating the nuances of this fragmented market. Guiding clients effectively will require a deep appreciation of the specific drivers shaping each capital city and buyer segment, a task this report is designed to facilitate.

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The Macroeconomic Headwinds and Tailwinds

To understand the current state and future trajectory of the property market, it is essential to first examine the macroeconomic landscape. The decisions made by the Reserve Bank, the path of inflation, and the underlying health of the economy provide the fundamental context for housing demand, affordability, and lender sentiment. In Q3 2025, the narrative is one of cautious optimism, as easing monetary policy provides a significant tailwind, counterbalanced by lingering global uncertainties and domestic structural challenges.

The RBA’s Easing Stance: A Measured Approach

The most significant development shaping the market is the RBA’s shift towards a monetary easing cycle. At its **August 12th** meeting, the RBA Board lowered the official cash rate by **25 basis points** to **3.60%**. This marked the third reduction in 2025, bringing the total easing for the year to **75 basis points**. In a positive sign for borrowers, all major banks moved quickly to announce they would pass the full cut on to customers with variable rate home loans, with effective dates staggered throughout August. The RBA’s rationale for the cut was clear: inflation has continued to moderate, and higher interest rates have successfully worked to bring aggregate demand and supply into better balance. However, the Board’s forward guidance was notably cautious. RBA Governor Michele Bullock flagged the potential for “two or three” more cuts if economic conditions evolve as forecast, but stressed that the outlook remains uncertain. Key risks highlighted by the Board include ongoing global trade policy uncertainty, a fragile outlook for household consumption, and persistently weak domestic productivity growth. This language signals a gradual and data-dependent easing path, rather than an aggressive, front-loaded stimulus campaign.

This sentiment is echoed by major bank economists, who are largely forecasting at least one more **25 basis point** cut by November 2025. Forecasts from NAB and Westpac extend further, predicting additional cuts into early 2026 that could take the cash rate to **3.10%**. This market is not experiencing a repeat of the 2020-21 stimulus-driven boom. The RBA’s measured language, combined with expert analysis, points to a fundamentally different dynamic. Westpac’s economists have aptly described the market’s current response as “affordability-constrained,” suggesting that high property prices are limiting the impact of lower rates. CoreLogic analysis reinforces this, noting that while rate cuts are boosting values, the market is starting from a much higher price base and with significantly lower consumer sentiment compared to the last major easing cycle. The data bears this out: monthly national home value increases have recently averaged around **+0.6%**, a stark contrast to the **+1.5%** average monthly growth seen between November 2020 and April 2022. It is therefore critical for brokers to manage client expectations, advising that while borrowing capacity is improving, the subsequent impact on prices will likely be more moderate and uneven than in the recent past. This helps prevent clients from overextending their finances based on unrealistic, boom-time assumptions.

Inflation: Back Within the Target Band

The RBA’s confidence to cut rates is anchored in the successful taming of inflation. Data for the June 2025 quarter, released by the Australian Bureau of Statistics (ABS), was pivotal. Headline CPI fell to an annual rate of **2.1%**, while the RBA’s preferred measure of underlying inflation, the trimmed mean, moderated to **2.7%**. This officially marks the second consecutive quarter where underlying inflation has been within the RBA’s 2-3% target band, a significant milestone that has been a key precondition for monetary easing. The disinflationary trend has been broad-based. KPMG analysis shows that demand-driven inflationary pressures have fallen significantly over the past year, while easing supply-chain pressures have also contributed. While the cost of some essential categories like housing and education continues to rise, the overall downward trend has given the RBA the green light to stimulate the economy without fearing an inflationary breakout. For clients, this is a powerful psychological boost. For the past two years, rising rates were inextricably linked to the fight against high inflation and the associated cost-of-living pressures. The news that headline inflation is now at **2.1%** provides tangible proof that the “pain” of higher rates has achieved its objective. This fundamentally shifts the consumer conversation from “how high will my mortgage go?” to “how much relief can I expect?”. Brokers can leverage this data to build confidence with hesitant clients, explaining that the primary driver of high interest rates has been neutralized, paving the way for a more stable and predictable lending environment.

The Broader Economic Foundation: Resilient but Unsettled

The housing market is supported by a resilient, albeit unsettled, economic foundation. The labour market remains a key pillar of strength. Although the unemployment rate has edged up slightly, it stood at a historically low **4.2%** in the June quarter, well below pre-COVID levels. Business surveys and RBA liaison continue to indicate that labour availability is a constraint for many employers, suggesting underlying strength. This economic stability, combined with rate cuts and tax relief, is feeding into a recovery in confidence. The NAB Residential Property Index jumped to **+40** in the first quarter of 2025, signaling a strong turnaround in market sentiment after three softer quarters. More recently, the ANZ-Roy Morgan Consumer Confidence index hit a three-year high in August 2025. This improving sentiment is expected to support a modest recovery in household consumption and private demand through the remainder of the year. However, the global context remains a source of uncertainty. While fears of a highly damaging global trade war have eased, US tariff policies and geopolitical risks are still expected to weigh on global growth, which could indirectly affect Australia. For now, the domestic economy has proven remarkably resilient to these external pressures.

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National Property Market Performance: A Story of Supply-Driven Growth

At a national level, the property market’s performance in 2025 has been characterized by consistent, supply-constrained growth. Despite affordability challenges and economic uncertainties, the fundamental imbalance between the number of buyers and the number of available properties for sale continues to exert upward pressure on values across the country.

National Dwelling Values: Consistent Upward Momentum

According to CoreLogic data, national dwelling values rose by **+0.6%** in July 2025, marking the sixth consecutive month of growth since the market turned positive in February. This steady appreciation has pushed the national mean price of a residential dwelling to **$1,002,500** as of the March 2025 quarter, according to the ABS. This sustained momentum has led major banks to upgrade their forecasts significantly. ANZ, for example, has lifted its forecast for combined capital city price growth to **+5.0%** for 2025 and a further **+5.8%** in 2026. This growth is fundamentally underpinned by a structural housing shortage. National property listings are tracking approximately **19-20%** below the five-year average, creating a highly competitive environment for buyers. Compounding this, annual sales volumes are tracking **1.9%** above the five-year average, demonstrating that buyer demand remains robust despite higher prices. This tension between low supply and persistent demand is the primary force sustaining price pressure across the market. The auction market serves as a real-time barometer of this imbalance. Preliminary auction clearance rates across the combined capitals consistently held above the **70%** mark for six consecutive weeks leading into August, a strong indicator of market depth and buyer competition. In the week ending July 20, the preliminary national clearance rate hit a robust **74.4%**, the second-highest preliminary result for the year to date.

The Widening Gap: Houses vs. Units

A defining feature of the market over the past few years has been the significant performance divergence between houses and units. Since the onset of the pandemic, capital city house values have risen almost three times as much as unit values. This trend has continued, albeit at a slightly more converged pace. In the three months to July, national house values rose by **+1.9%**, while unit values increased by a smaller **+1.4%**. This persistent gap has pushed the difference between the national median house and unit value to a record high of approximately **$223,000**. This record price gap is more than a statistic; it is becoming a powerful driver of future demand. As rapid house price growth has severely stretched affordability for many, particularly first-home buyers, the relative value offered by the unit market is becoming increasingly compelling. Data is already beginning to reflect this shift. In Melbourne’s June quarter, for instance, unit prices recorded stronger quarterly growth than houses. Similarly, in Perth, some analysts are now forecasting that units will outperform houses for price growth over the remainder of 2025, a significant reversal of the long-standing trend. This suggests that the market may be approaching an inflection point. For brokers, this creates a clear opportunity to highlight the relative value and potential for “catch-up” growth in the unit market. This is a particularly salient point for first-time buyers and value-conscious investors who are seeking more accessible price points in a market where house prices have become prohibitive for many.

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State-by-State Breakdown: A Multi-Speed Market Emerges

While national data provides a useful overview, the reality on the ground in Q3 2025 is one of stark divergence. The Australian property market is not a monolith; it is a collection of distinct local markets, each with its own unique economic drivers, supply dynamics, and growth trajectory. Understanding these nuances is the most critical task for brokers advising clients in specific locations. A “multi-speed” market has clearly emerged, with the recovery stories of Sydney and Melbourne contrasting sharply with the moderating booms in Perth, Brisbane, and Adelaide.

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The Lending and Regulatory Environment

For brokers and their clients, understanding the mechanics of financing is just as important as understanding market trends. The current environment is defined by the dual forces of monetary easing from the RBA, which is improving borrowing capacity, and steadfast prudential oversight from APRA, which is maintaining strict lending standards.

Interest Rates: The Fixed vs. Variable Conundrum

With the official cash rate at **3.60%** and on a downward trajectory, variable rate home loans are the central focus of the market. Following the August rate cut, the average owner-occupier variable rate on Canstar’s database is expected to settle around **5.54%**. The lending market is highly competitive, with analysis showing that more than 30 lenders are offering variable rates of **5.25%** or less, providing significant opportunities for savvy borrowers to secure a competitive deal. Fixed rates, meanwhile, provide a clear signal of where lenders expect rates to go in the medium term. The average 3-year fixed rate was notably lower than the average 1-year fixed rate, which is a strong indication that lenders expect their funding costs to be lower over the medium term. This implies a belief that the RBA will continue to cut the cash rate, reinforcing the consensus view that the current easing cycle has further to run.

Major Bank Outlook and Appetite

The big four banks, while all forecasting further growth, hold slightly different views on the market’s trajectory, reflecting the general sense of uncertainty. ANZ is the most bullish, forecasting combined capital city growth of **+5.0%** in 2025 and **+5.8%** in 2026. Westpac is the most cautious, seeing a “constrained” outlook of just **+3%** growth for the year. Despite this, the banks’ actions show a clear appetite to lend. This willingness to lend is supported by the remarkable resilience of borrowers and robust credit quality. Westpac, for instance, reported that its Australian mortgage 90+ day delinquencies fell by 3 basis points to just **0.59%**, and noted that a significant portion of its customers have substantial repayment buffers.

Regulatory Watch: APRA’s Steady Hand

A crucial piece of the puzzle for the lending environment is the role of the prudential regulator, APRA. In a key announcement on **July 23, 2025**, APRA confirmed that it would maintain its current macroprudential policy settings, most notably keeping the mortgage serviceability buffer at **3 percentage points** above the loan’s interest rate. This decision represents a deliberate and important counterbalance to the RBA’s monetary easing, designed to prevent the market from overheating and to avoid a repeat of the risky lending practices seen in some past cycles.

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The Opportunity Horizon: Guiding Clients in Q3 2025

In a market defined by such varied conditions, synthesizing the data into actionable strategies is paramount. The opportunities for first-home buyers, investors, and upgraders differ significantly depending on their location, budget, and risk appetite. The broker’s role is to cut through the national headlines and provide tailored, data-backed guidance to help clients achieve their specific goals.

Opportunities for First-Home Buyers (FHBs)

First-home buyers face a challenging environment, but a strategic approach can unlock pathways to ownership. A three-pronged strategy is essential:

• Leverage Government Support: This is a non-negotiable starting point. Brokers must be experts in the various state-based schemes available. In Queensland, the First Home Owner Grant was doubled to **$30,000** for new builds. In Western Australia, a **$10,000** grant is available. These grants are often paired with valuable transfer duty (stamp duty) concessions, further reducing the upfront cost of entry.
• Target the Unit Market: The record price gap between houses and units presents a clear and compelling opportunity. In Melbourne, where the median unit price of **$573,600** is nearly half a million dollars less than the **$1.06 million** median house price, units offer a far more realistic target for FHB budgets.
• Focus on “Affordable and Liveable” Suburbs: In Brisbane, this means guiding clients towards areas that balance affordability with essential amenities and transport links. Suburbs like Keperra, Zillmere, and Wynnum are gaining traction for this reason. For those on tighter budgets, suburbs further out such as Goodna, Beenleigh, and Bellbird Park offer some of the most affordable entry points in the region.

Opportunities for Investors

For property investors, the current market offers two distinct strategic pathways: chasing high rental yields in strong, undersupplied markets, or targeting capital growth in recovering or undervalued segments.

• High-Yield Markets: Perth is the clear national leader for rental returns. Strong demand and critically low vacancy rates are delivering exceptional yields. Metropolitan suburbs like Cannington (**5.9%** gross yield for houses) and Bayswater (a remarkable **8.0%** for units) offer strong and consistent returns. For investors with a higher risk tolerance, regional WA presents even more lucrative opportunities, with mining-adjacent towns like Derby and Newman offering yields in excess of **11%** due to intense demand for worker accommodation. Regional South Australia is another hotspot, with many towns offering solid rental yields above **4.5%**.
• Capital Growth Plays: The recovery in Melbourne presents a classic “buy-in” opportunity. With prices still below their 2021 peak but quarterly growth accelerating, investors can position themselves to ride the wave of the market’s rebound. The unit markets in Brisbane, Adelaide, and Perth are also prime targets for capital growth.
• Rent-vesting: The significant divergence in rental yields and capital growth prospects across the country makes the “rent-vesting” strategy particularly viable. This approach, where a buyer invests in a high-growth or high-yield area while renting in their desired lifestyle location, allows them to build wealth in a strong market like Perth while living in a more expensive but perhaps less investment-optimal market like Sydney.

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The Broker’s Role as a Strategic Advisor

In a market this fragmented and nuanced, generic advice is redundant. The true value of a mortgage and finance broker in Q3 2025 extends far beyond loan facilitation. It lies in the ability to act as a strategic advisor, cutting through the noise of national headlines to provide tailored, data-backed strategies that align with a client’s individual circumstances. By developing a deep understanding of the specific dynamics of Perth’s supply crisis, Melbourne’s affordability-driven recovery, Brisbane’s growth moderation, and the critical nuances of the lending and regulatory environment, a broker can transform their role. They become an indispensable partner in their clients’ financial journeys, helping them to navigate the shifting tides of the Australian property market and build long-term wealth with confidence.

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