How Far Can Housing Prices Rise? Key Drivers - November Market Update 2025

Australia’s housing market is once again in the spotlight. According to the latest data from Domain for the September 2025 quarter, capital-city house values recorded robust gains, with a median increase of roughly $35,000 across the combined capitals. Five out of seven capital cities now have median house prices above $1 million. With such momentum, the question many buyers, investors and advisers are asking is: How far can prices go, and what will drive or limit the next leg of growth? 

Snapshot of Key Capitals

Here’s a brief look at what’s happening in the major markets and the forces at play: 

Sydney – At the top of the ladder, median house prices are at the $1.75 million mark. Domain highlights a path to $2 million+ by 2026-27 if current momentum holds. A strong state economy, tight listings and large-scale upgraders are fuelling demand. As is improved consumer sentiment helped by falling interest rates, improved borrowing capacity and lower unemployment. 

Brisbane – Brisbane has surged to become the #2 most expensive capital for houses (behind Sydney), with a median price just over $1.1 million in the latest quarter. The appeal here: relative value versus Sydney/Melbourne, strong interstate migration, land and house-stock supply pressures and the infrastructure boom with the impending Olympics in 2032. 

Melbourne – While Melbourne remains slightly more affordable than Sydney, it is seeing a rebound with house values rising 6.2% this year to around $1.1 million. Demand is being supported by international migration and a higher student intake, lifestyle shifts and renovation activity. We believe Melbourne is at the ideal point of the property cycle for savvy investors to take advantage.  

Perth, Adelaide and others – These markets are also posting gains, though many commentators believe the pace will moderate. In Perth, for instance, growth continues but the “boom” phase is seen as past. Supply constraints, higher net-migration (in WA’s case) and improving infrastructure underpin the upside; but WA also faces a stronger affordability cap. 

Source: Domain September 2025 House Price Report 

What’s Driving Price Growth and What’s Holding It Back?

1. Availability of Credit

Driver: When borrowing costs fall or lending standards ease, buyer demand expands in proportion to increased borrowing capacity. More buyers chasing the same or fewer listings pushes prices up. With mortgage rates expected to drop further and banks having more lending headroom, we are seeing increased urgency.  
 
Brake: However, credit availability isn’t unlimited. Lenders remain cautious after the past market cycle, serviceability tests remain strict (in accord with APRA’s 3% serviceability buffer) and borrowers’ income growth is modest. If rates stay higher for longer, or banks tighten lending criteria again, that taps the brake. 
 

2. Affordability & Wages

Driver: Strong gains in property value can be sustained if wages and household incomes keep pace, or if buyers believe income growth is ahead (e.g., through promotions, dual incomes, return migrants). In markets where household incomes are significantly higher or rising fast there’s more capacity to pay. This is clearly seen in suburbs like Vaucluse, Mosman, Toorak and Teneriffe to name a few- where high median price is correlated with higher incomes.  
 
Brake: In many capitals, especially the big east‐coast ones, incomes have not kept pace with house price growth. As affordability is stretched (debt to income ratio) the pool of eligible buyers shrinks, or fewer buyers are willing to compete. That puts a practical cap on how far prices can rise before demand slows. Some recent commentary suggests affordability as the major constraint which will bring a more moderate growth cycle ahead. 
 

3. Interest Rates

Driver: Lower interest rates reduce the cost of buying (both purchase cost and serviceability), increasing maximum borrowing potential and encouraging buyers to enter the market or upgrade. Market sentiment often responds to expectation of cuts even before they arrive.  
 
Brake: But interest rates are already higher than the lows of the pandemic era and many borrowers have had to reset during recent rate rises. If inflation surprises the market, or global/ domestic conditions force rates higher or stable instead of falling, that restricts capacity. Also, markets often anticipate rate cuts, meaning the boost may be partly factored in already, leaving less upside when cuts eventually happen. 
 

4. Supply & Construction Constraints

Driver: Chronic undersupply remains one of the most powerful price accelerants in the current market. New dwelling approvals are hovering near decade lows, construction costs remain stubbornly high, and the collapse of numerous building companies has reduced industry capacity. With population growth outpacing new completions, the gap between supply and demand is widening. Even modest increases in buyer demand translate quickly into price rises because there’s so little new stock to absorb the pressure. The Government target of 1.2m houses by 2030 is unlikely to be met, with a deficit exceeding 300,000 dwellings. 

(Note – watch this space as I am preparing a major report on the supply crunch and its widespread impacts).  
 
Brake: While undersupply supports prices, it can also act as a brake on turnover and overall affordability. Fewer new homes mean fewer transactions and stretched construction timelines make developers more cautious about launching new projects. High build costs and regulatory bottlenecks can discourage new supply, creating a cycle where scarcity itself slows the market’s ability to respond. 
 

5. Inter-Generational Wealth Transfer

Driver: Wealth transfer between generations, via inheritances of parents assisting children into the market (aka the bank of mum and dad), is a significant informal driver of demand. Younger buyers receiving gift deposits or top-ups, increase buyer capacity and willingness to pay a premium. The next 20 years will see one of the largest wealth transfers in Australian history and a greater social divide between those in the property market and those locked out.  
 
Brake: The limits here are two-fold: First, this process tends to favour the top of the market rather than broad base price growth. Second, if younger buyers are being supported, serviceability and ongoing income become the limiting factor. These assisted buyers still need to meet ongoing payments, so property price escalation hits a ceiling. 
 

Summary 

Just 10 years ago we were all shocked at seeing median prices above $500k. Now $1m is the new norm.  Fast forward 10 years and $2m could well be the new norm!  

For home buyers, the current market signals suggest timing is of the essence. The Governments’ new 5% deposit scheme is pulling forward demand at the more affordable end of the market. With listings tight and competition heating, identifying well-located, well-priced properties and acting efficiently remains critical. While chasing “cheap” is harder, targeting relative value (for example in under-supplied suburbs, houses versus units where appropriate, or markets still with room to grow) can work well. 

For investors, the unit market’s relative outperformance in some capital cities signals opportunity, but also demands careful analysis of yield, vacancy risk and future supply. Wealth transfer provides a structural tailwind for some segments but does not solve ongoing affordability, hence capital growth is still best underpinned by local fundamentals (supply constraint + demand + income growth) rather than broad assumption. 

In short: prices can and will continue to rise, but the rate of increase will likely be slower than recent peaks.  

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