On 8 July 2025, the Reserve Bank of Australia (RBA) held the official cash rate steady at 3.85%, delaying the anticipated rate cut to August 2025. This decision reflected a tactical pause rather than a directional change, with the RBA awaiting June quarter CPI and updated labour data before proceeding further.

Despite the higher-than-expected holding period, the interest rate outlook remains firmly on an easing bias. The RBA has already delivered two cuts in 2025 (February and May), with markets now pricing in a 0.25% reduction in August, and potentially one or two more by year-end. This delay in relief has maintained average variable mortgage rates at around 5.3%, sustaining pressure on borrower cash flows and expectations.

However, property values have continued to rise, with Cotality’s Home Value Index marking five consecutive months of growth, and June delivering a 0.6% national increase, led by Darwin, Perth, and Brisbane. The resilience of the housing market in the face of sustained interest rate pressures highlights the growing dominance of supply-side constraints.

Housing market conditions remain buoyant and undersupplied, with auction clearance rates above 70% for four consecutive weeks - well above the long-run average (~60%) and indicative of a seller’s market.

Since January 2025, median housing prices have risen by ~3.2%, translating to an approximate $26,000 increase in the value of the median home. Despite some moderation in sentiment due to rate delays, analysts now expect annualised housing price growth of 4–5% over the next three years, contingent on the continuation of easing and improved affordability.

The most significant drag on housing equilibrium remains supply. The National Housing Supply and Affordability Council’s May 2025 report confirmed that only 177,000 dwellings were completed in 2024, well below the estimated 223,000 required. The government’s ambitious Housing Accord target of 1.2 million homes by 2029 is forecast to fall short, with current expectations landing at just 825,000 dwellings.

Planning inefficiencies persist despite a ninefold increase in planning personnel since 1986 whereby approvals per planner have fallen from over 50 to fewer than 9 dwellings annually. Productivity constraints, coupled with labour shortages and material cost escalations, remain formidable hurdles. State initiatives, including NSW’s $1bn presale finance guarantee and Queensland’s $165m equity support, may aid momentum but are unlikely to bridge the gap materially.

Affordability pressures remain acute. Owner-occupiers now devote approximately 30% of disposable income to mortgage repayments - up from 27% a year ago - despite softening interest rates. Meanwhile, rising home prices have absorbed most of the borrowing capacity improvements.

Policy adjustments, such as stamp duty concessions in Queensland and South Australia, and Victorian land tax relief for downsizers, offer limited, targeted support. However, the lack of movement on negative gearing and CGT concessions continues to incentivise investor participation, with investors still accounting for over one-third of new loans.

Net overseas migration is projected to fall to 175,000 households per year from FY2025–26, down from 315,000 in FY2024–25. While this easing will slightly relieve pressure, it remains above historical averages and continues to outstrip the pace of new dwelling completions, reinforcing structural undersupply.

At current construction rates, housing values risk reaching eight times the median household income by year-end, reflecting further detachment between housing costs and earning capacity. Meanwhile, national rents have surged by over 6%, and vacancy rates remain at multidecade lows, intensifying cost-of-living concerns and fuelling shared living arrangements.

The rise in dwelling values has expanded household net wealth, creating a wealth effect among property-owning Australians. This effect has been compounded by higher superannuation earnings-buoyed by elevated interest income across the portfolio. As a result, discretionary consumption has remained resilient, providing a buffer to slowing activity elsewhere.

However, this consumption tailwind could add to inflationary pressures, frustrating the RBA’s goal of sustainably returning inflation to the 2–3% target. Mortgage arrears have ticked up slightly, with Fitch reporting 1.35% of borrowers over 30 days delinquent in Q1 2025 - a modest but notable signal of financial stress.

Australia’s residential property market has demonstrated remarkable resilience, outperforming interest rate gravity and demographic headwinds. Housing continues to serve a dual role - as shelter and speculative asset-complicating policy responses. Without substantive supply-side reform, affordability will remain elusive, prices will continue their upward drift, and policy tools will be left treating symptoms rather than causes.

In short, while the wealth effects are currently positive for many Australians, the broader social and economic cost of unaffordable housing is growing. Further rate cuts may temporarily support prices, but the long-term fix lies in efficient, large-scale housing delivery - an outcome that remains more aspirational than assured.