Australia's property market has bounced back from its shortest downturn ever – just three months and a tiny 0.4% dip – with dwelling values now up 1.7% in 2025. Every capital city is growing, markets are betting on an 80% chance of another rate cut in July, and Melbourne has emerged as the surprise investment hotspot. With banks suddenly eager to lend to developers again we're seeing what could be a once-in-a-decade opportunity taking shape.
Here's what's really interesting about this recovery: it's happening everywhere at once. After years of some cities racing ahead while others lagged behind, suddenly every capital city is posting solid gains. Melbourne, after years of relative underperformance, now presents a compelling value proposition nationally – it's the second-cheapest capital city and expecting the strongest population growth over the next decade.
The other big story? Banks are back in the development game in a major way. After years of making it nearly impossible to get development finance, they're now falling over themselves to lend. Some aren't even requiring pre-sales anymore. When you combine this with rate cuts and a massive shortage of new homes being built, you've got all the ingredients for something special.
Key Highlights
- National dwelling values up 1.7% in just five months after shortest downturn on record
- Every capital city posting gains, with only Melbourne (-1.2%) and Canberra (-0.7%) negative annually
- Markets pricing greater than 80% chance of July rate cut, with RBA cash rate expected to head to 3.1% by Christmas
- Development land costs exploded 75% in five years (from $4.8m to $8.5m)
- Banks slashing pre-sale requirements – 29% of lenders now require zero pre-sales
- Building approvals crashed 31% for units, guaranteeing supply shortage continues
- Household savings jumped to 5.2% from 3.9% – pent-up buying power ready to deploy
- Melbourne emerging as golden opportunity: second-cheapest capital with strongest population growth projections
Australia's Shortest Property Downturn on Record
Talk about a quick turnaround. Between November 2024 and January 2025, property values dipped by just 0.4% over three months before roaring back to life. This officially makes it the shortest and smallest downturn we've ever recorded.
To put this in perspective, during COVID in 2020, values fell 1.8% before the recovery kicked in. Back in 2015, when APRA tightened lending rules, we saw a 1.4% decline. This time? The market barely stumbled before finding its feet again.
Tim Lawless from Cotality nails it: "It really shows how much access to credit, or the ability to borrow money from the banks, can affect housing values." The moment the Reserve Bank cut rates in February, buyers jumped back in with both feet.
What's particularly telling is how auction clearance rates responded immediately to May's rate cut. "With interest rates falling again in May, we are likely to see a further positive influence flowing through to housing values in June and through the rest of the year," Lawless predicts.
For investors, the message is clear: property markets can turn incredibly quickly when credit loosens up. Those waiting for a "proper" correction might find themselves on the sidelines watching prices climb.
"The fact that we've just witnessed Australia's shortest property downturn on record – a mere three-month blip – tells you everything about the underlying strength of this market. When values bounce back 1.7% in just five months despite economic headwinds, it confirms that structural forces like chronic undersupply and population growth are far more powerful than temporary credit conditions," says Godfrey Dinh, CEO of Futurerent.
Capital Cities Converge as Growth Accelerates
Something remarkable happened in May – every single capital city posted gains of at least 0.4%. Sydney added 0.5%, Melbourne 0.4%, Brisbane 0.6%, and Perth continued its run with 0.7%. Even Darwin, which has been in the wilderness for years, surged 2.8% for the quarter.
"The continued momentum we're seeing across almost all markets is no doubt being fuelled by rate cuts – both those that have already happened, but also potential cuts in the coming months," explains Tim Lawless.
What's fascinating is how the gap between the best and worst performing cities has narrowed to just 9.8 percentage points – the smallest gap since March 2021. Only Melbourne (-1.2%) and Canberra (-0.7%) remain in negative territory annually, signalling massive catch-up potential.
In fact, as Lawless notes, "We haven't seen a gap this wide in housing values between Sydney and Melbourne since 1999." This historic divergence won't last – it never does.
Melbourne's turnaround is particularly noteworthy. REA Group's Eleanor Creagh explains: "Melbourne is now catching up after a sustained period of underperformance relative to other capitals – a common pattern in cyclical housing markets."
The inner city is where the action is hottest – houses up 3.5% and units jumping 5.5% for the quarter. These aren't small moves; they signal serious momentum building in previously overlooked markets.
Rate Cuts Incoming: Markets Price July and August Moves
The Reserve Bank's next moves seem highly likely – financial markets are now betting on a greater than 80% chance of a rate cut at the July 7-8 meeting, with 70% odds for another at the August 11-12 meeting. NAB are now forecasting 25bps cuts in July, August and November, which would mean a total of 75 basis points in cuts and take the cash rate down at 3.1% by Christmas.
Why such confidence? Well, the RBA minutes revealed they seriously considered a bigger 0.5% cut in May before playing it safe with 0.25%. Governor Michele Bullock's words were telling: the cut was "cautious" but came "with a recognition that if we need to move quickly, we can. We have got space."
The economic data backs up more cuts. GDP grew by just 0.2% in the March quarter – way below what the RBA was expecting. We're technically in a per capita recession, with GDP per person down 0.4% over the year as population growth outpaced economic expansion. Not great for the economy, but perfect conditions for rate cuts.
Here's what this means for property buyers: each 0.25% cut typically adds $10,000-$25,000 to borrowing power on a $500,000 loan. With potentially three cuts coming, that's up to $75,000 extra firepower for buyers – money that flows straight into property prices.
Auction Activity Surges to Highest Levels This Year
The auction market is telling its own story of renewed confidence, with nearly 3,000 properties going under the hammer across capital cities last week – the highest volume since before Easter and the second highest so far this year. The preliminary clearance rate of 70.0% confirms buyers are back in force, especially considering this strong result came on much higher volumes.
Melbourne led the charge with 1,547 auctions – the city's busiest week this year and the highest since late October 2024. Even more impressive, this marks the fifth consecutive week where Melbourne's preliminary clearance rate has held above 70%, with 72.4% of homes selling under the hammer. That's the kind of sustained strength we haven't seen in years.
Sydney wasn't far behind, with 1,062 homes auctioned and a solid 69.9% clearance rate. When finalised, the previous week's 72.2% preliminary rate settled at 67.3% – Sydney's highest final clearance rate since August 2024. The momentum is clearly building.
Brisbane held 153 auctions with 64.9% selling, while Adelaide's 115 auctions achieved a 55.4% clearance rate. While Adelaide's result was its lowest since November 2020, it's worth noting that even the weakest performing capital is still achieving clearance rates above 50% – a sign of broad market health.
For investors tracking market sentiment, these auction results provide real-time evidence of buyer demand. When clearance rates consistently hold above 70% on rising volumes, it signals genuine market strength rather than just temporary enthusiasm.
Development Crisis: Land Costs Soar While Construction Stalls
Here's where things get really interesting for investors. Development land costs have absolutely exploded – up 75% in five years from $4.8 million to $8.5 million according to Ray White data. At the same time, new construction is grinding to a halt.
Building approvals fell 5.7% in April and are down 12.5% since January. The real shocker? Unit approvals crashed 31% – these are the townhouses and apartments our cities desperately need.
Ray White's Nerida Conisbee explains the squeeze: "Land costs haven't come back down and what's happening is developers want to build, but they can't do it affordably. We're not seeing the crashes in the market we previously saw so we're in a kind of holding pattern."
Construction costs aren't helping either, rising 5-6% annually according to HIA data. Even more telling, Commonwealth Bank's Stephen Wu notes an unexpected trend: "Since August last year, a clear downtrend had been sustained as home builders have responded to weak demand by offering promotions and incentives. But with the start of the RBA's interest rate cutting cycle since February, expectations around home price growth have sharply increased."
The result? Just 42,590 residential lots were sold nationally in 2024 despite record prices. We're simply not building enough homes, and it's getting worse.
For existing property owners, this is actually great news. When replacement costs soar and new supply dries up, established properties become increasingly valuable. That 75% increase in land values flows through to any property with development potential.
Lenders Rush Back to Development Finance
After years of being almost impossible to deal with, banks are suddenly falling over themselves to lend to property developers. This shift could be the key that unlocks the next construction boom.
The stats are eye-opening. Bank lending to developers has halved as a percentage of total lending since 2008. Private lenders filled the gap, charging 8-15% interest versus banks at 6-9%. Many good projects simply couldn't stack up at those rates.
Now everything's changing. According to Stamford Capital's latest survey, 46% expect major banks to increase construction lending this year. Pre-sale requirements are plummeting – last year, most wanted 60-70% pre-sales. Now 71% of lenders want 35% or less, and incredibly, 29% don't require any pre-sales at all.
Proportion of pre-sales required by lenders to fund construction (%)
Peter O'Connor from Stamford explains: "Decreasing rates generally increase asset prices, which is great for feasibility. And also a decreasing rate actually reduces the cost burden on projects, so more projects actually become feasible."
This is huge for the market. Better access to cheaper development finance means more projects will get built, though given the approvals crisis, it'll take time to make a dent in the shortage.
Melbourne: Australia's Hidden Investment Gem
After years playing second fiddle to Sydney, Melbourne is having its moment. It's now the second-cheapest capital city (only Darwin and Hobart are cheaper) and, crucially, "has been identified as the Australian capital most likely to experience the strongest population growth during the next decade," according to REA Group's Anne Flaherty.
The numbers tell the story. Melbourne property has grown just 16% since March 2020, versus the capital city average of 43%. Values are still 4.5% below their 2022 peak, while Sydney sits just 0.3% from record highs. We haven't seen a gap this wide since 1999.
Flaherty sees huge potential: "Because Melbourne is so much more affordable than most of Australia's other capital cities, it's the second cheapest city to rent in. So what that means is, it's also most likely going to drive interstate migration into Melbourne."
The population story creates a powerful investment pipeline. "When people first move to a city, they're more likely to be renters than owner-occupiers for at least the first five years," Flaherty explains. "That means within a few years' time, a lot of these people will be looking to buy their first home, and that's going to lead to increased buyer demand."
Inner city Melbourne is already moving – houses up 3.5% and units surging 5.5% quarterly. Auctioneer Nigel Harry is seeing the shift: "There is so much infrastructure going on around inner city, I think that people are seeing it as a pretty safe investment."
"Melbourne at a 4.5% discount to its peak while Sydney sits near records represents a historic arbitrage opportunity. When you factor in Melbourne's projected population growth leadership and its position as Australia's second-cheapest capital, the investment case becomes compelling," notes Godfrey Dinh, CEO of Futurerent.
Regions where house price growth is accelerating
Regions where unit price growth is accelerating
Economic Headwinds Support Property Surge
While GDP crawls at just 0.2% quarterly growth, these economic headwinds are paradoxically perfect for property. Australia's population grew much faster than the economy, putting us in a per capita recession that virtually guarantees aggressive rate cuts.
The global picture reinforces this. The OECD cut its global growth forecast from 3.1% to 2.9%, with no improvement expected next year. In this environment, Australian property offers a defensive asset with genuine growth prospects.
BetaShares chief economist David Bassanese acknowledges the challenges: "This likely reflects the ongoing squeeze on some households from restrictive interest rate levels along with some caution in the face of US President Trump's tariff war and associated financial market volatility."
But here's the thing – these very pressures force the RBA's hand toward more cuts, which flow directly into property prices. We're already seeing this play out, with values rising despite broader economic weakness.
Strategic Implications for Investors
The opportunities are clear, but timing is everything. With the RBA meeting on July 7-8 and markets pricing greater than 80% chance of a cut, the window for action is measured in weeks, not months.
Sydney agent Ben Pike captures the building urgency perfectly: "People still have 2021 in their memory when the market jumped up about 25%." He's seeing the competition heat up in real time: "Week on week we've seen more engagement with listings online, more enquiries, and open home numbers have tripled. Instead of having one or maybe two good buyers per property, you're looking at five or six."
Focus on these key strategies:
- Development opportunities: With banks eager to lend and land values soaring 75%, properties with subdivision potential offer exceptional upside
- Melbourne arbitrage: Buy into Australia's second-largest city at a significant discount while population growth accelerates
- Established property: With building approvals collapsing 31%, existing homes will capture premium value
Household savings have jumped to 5.2% from 3.9% in the previous quarter, showing Australians have built up significant firepower. As disposable income grew faster than consumption, this pent-up buying power is ready to flow into the market as confidence returns with lower rates.
Household savings are recovering
The broad-based nature of this recovery – every city growing simultaneously – reduces risk while maximising opportunity. This isn't a one-city boom; it's a national revaluation supported by genuine fundamentals.
Market Outlook
We're witnessing the start of what could be a significant growth phase. The shortest downturn on record has given way to synchronised growth across every capital, supported by a powerful combination of factors that typically drive 15-20% gains over the following years.
The Reserve Bank has clearly pivoted to supporting growth, with multiple rate cuts virtually locked in for July 7-8 and August 11-12. Supply constraints are getting worse, not better, with the projected 262,000 dwelling shortfall by 2029 guaranteeing upward price pressure. Banks returning to development finance marks a crucial turning point in the credit cycle.
Melbourne's re-emergence as an investment hotspot could drive national growth for years. As interstate migrants discover they can buy in Melbourne for hundreds of thousands less than Sydney, the historical price gap will narrow dramatically. With the strongest population growth projections of any capital, the catch-up story is compelling.
Most importantly, this isn't speculative froth. Employment remains solid at 4.1%, household savings have jumped to 5.2% providing future buying power, and population growth continues. These are the fundamentals that support sustained, healthy price growth rather than bubbles.
The message for investors is simple: with all signals pointing to sustained growth and the shortest downturn already behind us, waiting means paying more later. As buyers remember the 25% surge of 2021 and competition triples at open homes, the fear of missing out is becoming fear of being priced out.
With markets pricing an 80% probability of a July rate cut and household savings at 5.2%, we're seeing perfect conditions for a sustained growth phase. The combination of pent-up buying power, synchronised growth across all capitals, and memories of 2021's FOMO is creating genuine urgency," says Godfrey Dinh, CEO of Futurerent.
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