SYDNEY, Jan 2 — Australia’s housing market wrapped up 2025 with strong gains and record prices, but rate rise fears and decreasing affordability have started to dent market exuberance into the New Year, data from Cotality showed today.

“A ‘higher for longer’ setting on interest rates, alongside a resurgence in cost-of-living pressures and worsening affordability pressures, looks to have taken some heat out of the market,” said Tim Lawless, Cotality’s research director.

The Reserve Bank of Australia cut interest rates three times last year to 3.6 per cent, fuelling a housing boom. But the easier financial conditions have also reignited inflation, with two of Australia’s big four banks now tipping a hike as early as February.

Key details

•    National home prices rose 0.7 per cent in December to a record median value of A$901,257 (RM2.4 million), figures from Cotality showed. That was the smallest monthly gain in the past five months as prices for Sydney and Melbourne each dipped 0.1 per cent. Adelaide and Perth still pulled ahead with a big jump of 1.9 per cent.

•    For the year, national prices are 8.6 per cent higher, marking the strongest annual gain since 2021 when emergency-level low interest rates fueled housing activity.

•    The upper quartile of the market, which has been grappling with affordability issues, was about flat in December, while values across the lower quartile and middle of the market jumped 1.1 per cent.

•    Uncertainty around inflation and interest rates, ongoing affordability challenges and stepped up government scrutiny on lending policies are the likely headwinds facing Australia’s housing market, but the chronic shortage of ⁠supply should help offset the downside risks. — Reuters