Australia's capital cities are moving in remarkable lockstep, with growth rates converging to their narrowest gap in over 4 years at just 9.8 percentage points. While the King's Birthday weekend temporarily disrupted auction momentum – clearance rates dipped to 63.8% nationally – the underlying market strength remains intact. With financial markets pricing a 91% chance of a July rate cut and Melbourne extending its run of 70%+ clearance rates to six weeks, investors are recognising the unique opportunity in this synchronised market recovery.
After years of wildly divergent performance across our capital cities, we're witnessing something quite extraordinary. The gap between the best and worst performing capitals has shrunk from a massive 26.1 percentage points last August to just 9.8 points today – the narrowest range since March 2021. This convergence tells us the market is finding its equilibrium, with previously struggling cities like Melbourne and Hobart recovering while high-flyers moderate their pace.
The long weekend auction results might have given some investors pause, but seasoned market watchers know holiday disruptions are temporary blips, not trend changes. With 2,161 auctions scheduled this week – up 57.4% from the holiday-affected previous week – and rate cut expectations intensifying, the stage is set for renewed momentum as we head into the traditionally strong winter selling season.
Key Highlights
- Capital city growth rates converge to narrowest gap (9.8pp) since March 2021, down from 26.1pp last August
- Annual sales activity robust at 526,530 transactions, up 2.3% year-on-year
- Melbourne maintains strength with sixth consecutive week of 70%+ auction clearance rates
- Financial markets price 91% chance of July rate cut
- Darwin leads quarterly growth at 4.3%, with Perth and Brisbane tied at 1.6%
- Investor lending surges to $32.4 billion, up 16.0% year-on-year
- Average variable mortgage rates down to 6.00% for owner-occupiers, 6.22% for investors
Capital Cities Moving in Lockstep
The Australian property market has reached a fascinating inflection point. After experiencing the most diverse conditions since 2007, our capital cities are now marching to the same beat, with annual dwelling value growth converging to levels not seen in over four years.
Tim Lawless from Cotality explains the remarkable transformation: "For Sydney, home values have bounced back from a 12.4% decline in early 2023 to positive growth by July 2023, peaking at 12.3% annual growth in January 2024, but since then, growth has slowed to its lowest rate (1.1%) since June 2023." Meanwhile, Melbourne's recovery story is even more dramatic: "Melbourne's annual rate of decline has eased from -7.8% in January 2023 to -1.2% over the past year, with values steadily increasing since February."
Even Hobart, which experienced the deepest correction with an 11.8% annual decline in March 2023, has turned the corner with values now up 1.0% over the past year. As Lawless concludes: "For now, capital city housing markets are moving more in step than they have in years."
Godfrey Dinh, CEO of Futurerent, sees this convergence as a significant market signal: "The convergence of capital city growth rates to just 9.8 percentage points represents a movement towards market equilibrium. When previously divergent markets start moving in sync, it signals we're entering a more mature, sustainable growth phase."
This convergence creates a more predictable investment landscape. When markets move together, it signals broad-based confidence rather than speculative hot spots. For investors, this means opportunities exist across multiple cities rather than being concentrated in just one or two locations.
Long Weekend Disrupts Auctions
The King's Birthday long weekend delivered a reality check to the auction market, with volumes plummeting 52.1% to just 1,397 properties and the preliminary clearance rate dropping to 63.8% – the lowest result so far this year. But before anyone hits the panic button, it's worth understanding what's really happening here.
Sydney bore the brunt of the disruption, with its preliminary clearance rate falling to 59.9% from 69.9% the previous week. However, Melbourne showed remarkable resilience, maintaining a 71.5% clearance rate and extending its impressive run to six consecutive weeks above 70%. Among the smaller capitals, Adelaide led with 60.3%, followed by Brisbane at 58.3%.
"A 63.8% clearance rate during a long weekend actually demonstrates remarkable market resilience," notes Godfrey Dinh, CEO of Futurerent. "The fact that Melbourne maintained above 70% for the sixth consecutive week while Sydney's inner areas hit 79.6% tells the real story."
Louis Christopher from SQM Research provides additional perspective: "It should return back to levels where we were about three weeks ago, two weeks ago. I think buyers will be out there, they will be aware that there is more talk of yet another rate cut in July – and we do believe there will be a rate cut in July. So, I think from this point onwards, we're going to see stronger clearance rates come through."
The numbers already support his optimism. This week, 2,161 homes are scheduled for auction across the combined capitals – a 57.4% jump from the holiday-affected week. This surge in supply meeting pent-up demand should see clearance rates bounce back to their recent stronger levels.
Auction Competition Heats Up
Beyond the headline numbers, the auction market is telling a story of sustained recovery and growing competition. May's data revealed the real trend, with Sydney's clearance rate jumping to 65.9% from 61.5% in April, while Melbourne surged to 67.4% from 63%. Drilling deeper, Sydney's city and inner south led the charge with an impressive 79.6% clearance rate, while Melbourne's inner east achieved a strong 70.8%.
Domain's Dr Nicola Powell captures the shift in market dynamics: "If you've been a buyer looking for a home over the past couple of months, you would have noticed the difference. The rise in the clearance rate has been slow, but it's been sustained over weeks. I do think buyers will be feeling there is a bit more competition, and they need to be more prepared when entering into auctions."
The psychological impact of rate cuts can't be overstated. "That sentiment is a massive game changer," Powell explains. "We are now in a rate reduction cycle which has been enough to bring people to market and make a decision and make people more confident." Looking specifically at Melbourne's prospects, she adds: "As those rate cuts come through, I do think those dynamics will be amplified."
Sydney auctioneer Damien Cooley has witnessed the transformation firsthand: "The end of May, we saw a shift in buyer sentiment and a shift in how buyers were behaving at auction. That is bidding intensity, and their willingness to open the bidding and bid throughout the auctions."
Rate Cut Expectations Intensify
The probability of a July rate cut has surged to 91% according to financial markets, following lacklustre economic growth figures that have strengthened the case for further monetary easing. With the RBA set to meet on July 7-8, buyers and investors are positioning themselves for what many see as an inevitable third rate cut this year.
The economic data paints a clear picture. First quarter GDP grew by just 0.2%, while GDP per capita actually fell 0.2%, technically keeping Australia in a per capita recession. Combined with core inflation sitting at 2.9% – comfortably within the RBA's target band – the central bank has both the room and the reason to cut.
What's particularly interesting is that the RBA board actually considered a 50 basis point cut at their May meeting before settling on 25 points. The minutes revealed they decided "there was not sufficient negative impact from global uncertainty on the economy to warrant a double cut at this meeting" – but crucially, the door remains wide open for further reductions.
All four major banks are now forecasting the cash rate to fall to between 3.1% and 3.35% by year-end, implying at least two more cuts beyond July. For property markets, this extended easing cycle provides a powerful tailwind that's already showing up in buyer behaviour and auction results.
Investor Activity Surges
The investor segment is showing remarkable strength, with new loan commitments reaching $32.4 billion in Q1 – up an impressive 16.0% from the same time last year. More significantly, investors now comprise 37.9% of all new loan commitments, well above the decade average of 33.7%.
Godfrey Dinh, CEO of Futurerent, highlights the significance of this trend: "Investors now comprising 37.9% of new loans versus the decade average of 33.7% isn't just a statistic – it's a clear signal that experienced property investors see value emerging. Combined with investor lending up 16% year-on-year, backed by $32.4 billion in new commitments, often precedes broader market appreciation. We're seeing investors position early for what could be a prolonged upward cycle."
This resurgence in investor activity is reshaping market dynamics across the country. Ray White's chief auctioneer for Victoria and Tasmania, Jeremy Tyrrell, has noticed the shift: "We're seeing a lot more investors coming back into the market, and we're seeing interstate investors … If you're looking at sub-$700,000, that's a very engaged and active market."
The data tells us investors are recognising value after a period of sitting on the sidelines. With rental yields holding steady at 3.7% nationally and the prospect of capital growth returning, the investment equation is becoming increasingly attractive. Regional markets offering 4.4% yields are particularly appealing to yield-focused investors.
This investor revival is happening alongside a moderation in first home buyer activity, which has fallen to 29.0% of owner-occupier lending. However, it's important to note that despite this decline, most states still see first home buyer participation above their decade averages, suggesting the pullback is more about increased competition than fundamental weakness.
Regional Markets Lead Growth Charge
While the convergence story dominates the capitals, some markets are still posting standout performances. Darwin continues to lead quarterly growth with values up 4.3% over the three months to May, followed by Perth and Brisbane tied at 1.6%.
The regional markets are where the real action is happening. Regional Western Australia leads the nation with 12.5% annual growth, closely followed by regional South Australia at 12.4%. These markets are benefiting from improved affordability relative to capitals, lifestyle shifts, and in WA's case, a resurgent resources sector.
Interestingly, rental yields tell their own story of market dynamics. While national yields hold steady at 3.7%, regional markets offer a significant premium at 4.4% compared to the combined capitals at 3.5%. For investors chasing yield in a low-rate environment, regional markets present compelling opportunities, especially given their strong capital growth performance.
The dwelling approvals data adds another layer to the story. While national approvals fell 5.7% in April, driven by an 18.9% plunge in unit approvals, Western Australia and South Australia bucked the trend with approvals sitting 23.2% and 33.7% above their decade averages respectively. This suggests these markets have the pipeline to support continued growth.
Mortgage Rates Trending Down
The mortgage rate environment has transformed dramatically, with average variable rates for owner-occupiers falling to 6.00% and investor rates at 6.22% – down 25 and 24 basis points respectively since January. With another rate cut highly likely in July, borrowers can expect further relief in coming months.
The RBA's May cut took the cash rate to 3.85%, but the minutes revealed just how close we came to a larger reduction. The board seriously considered a 50 basis point cut before deciding the economic impact from global uncertainty wasn't quite severe enough to warrant such aggressive action – yet.
Market expectations have shifted dramatically since then. Financial markets are now pricing an 89% chance of a 25 basis point cut in July (up from previous estimates), with the Big 4 banks forecasting the cash rate to fall to between 3.1% and 3.35% by year-end. This represents up to 75 basis points of additional cuts, which would translate to meaningful savings for mortgage holders.
For a typical $600,000 mortgage, each 25 basis point cut saves approximately $90 per month. With potentially three more cuts coming, borrowers could see their monthly payments drop by $270 – money that often flows directly back into the property market through increased borrowing capacity or consumer spending.
Housing Credit Conditions Support Growth
While rates fall and buyer activity increases, it's reassuring to see lending standards remain appropriately conservative. The latest data shows high-risk lending is well contained, with high loan-to-income (LTI) mortgages at just 3.1% and high debt-to-income (DTI) loans at 5.8% of new originations.
The composition of lending provides insights into market dynamics. Interest-only loans have crept up to 20.2% of new mortgages, reflecting increased investor activity throughout 2024. However, this remains well below the 40%+ levels seen in 2015, suggesting today's investor activity is more sustainable.
First home buyer participation has moderated to 29.0% of owner-occupier lending in Q1 – the lowest since December 2022. While this might seem concerning, it's crucial to note that most states still see first home buyer participation above their decade averages. The slight pullback likely reflects the competitive auction environment and rising prices, creating potential opportunities for investors as first home buyer competition eases temporarily.
The overall picture is one of healthy credit growth supporting sustainable price appreciation rather than speculative excess. With lending standards intact and high-risk lending contained, the market appears well-positioned for steady growth rather than boom-bust cycles.
Market Fundamentals
The underlying health of Australia's property market shines through in the fundamental metrics. Our residential real estate is now valued at a staggering $11.4 trillion, underlining property's position as the nation's largest asset class and wealth store.
Transaction volumes remain robust with 526,530 sales over the year to May – up 2.3% from the previous year and 2.7% above the five-year average. Even the monthly figure of 43,903 sales in May was only 1.1% below the five-year average, showing remarkable resilience despite various headwinds. This healthy turnover indicates a functioning market with good liquidity, essential for price discovery and investor confidence.
The median days on market have settled at 34 days nationally, up slightly from 30 days in April but still indicating reasonable market balance. Darwin (41 days) and Canberra (49 days) are actually selling faster than last year, with days on market down 12 and 2 days respectively.
These fundamentals paint a picture of a market finding its sustainable pace after the disruptions of recent years. We're not seeing the frenzied conditions of 2021, nor the uncertainty of 2022-23. Instead, we have a market moving at a measured pace with good depth and broad-based participation.
Strategic Implications for Investors
The convergence of capital city growth rates creates a unique moment for strategic portfolio positioning. Rather than chasing last year's winners, investors can now choose markets based on fundamentals like population growth, infrastructure investment, and relative value.
Melbourne stands out as offering particular opportunity. After underperforming for years, it's now showing consistent strength with six straight weeks of 70%+ clearance rates. The inner east's 70.8% clearance rate demonstrates particular strength. As Dr Nicola Powell notes about Melbourne specifically: "As those rate cuts come through, I do think those dynamics will be amplified."
The surge in investor lending – up 16% year-on-year to $32.4 billion – shows sophisticated investors are already moving. With investors comprising 37.9% of new loans versus the decade average of 33.7%, we're seeing a clear vote of confidence in the market's prospects.
Regional markets offering 4.4% yields versus 3.5% in capitals present compelling options for yield-focused investors, especially given their strong capital growth performance. The combination of yield and growth in regions challenges the traditional capital city-focused investment strategy.
Market Outlook
Looking ahead, the convergence of positive factors suggests the property market is set for sustained, balanced growth through the remainder of 2025. The near-certainty of a July rate cut will likely reignite buyer activity after the long weekend lull, with spring shaping up as particularly strong.
The synchronisation of capital city markets at moderate growth rates is actually the ideal scenario for long-term investors. It suggests we're entering a phase of sustainable appreciation driven by fundamentals rather than speculation. With GDP weak but employment stable, the RBA has room to support the economy without risking inflation.
The combination of converging growth rates, falling mortgage costs, surging investor activity, and solid transaction volumes points to a market ready for its next growth phase. While it may not be the explosive growth of 2021, the conditions suggest steady, sustainable appreciation that builds real wealth over time.
How Futurerent Can Support
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