Interest rate cuts, buyer shifts, and supply challenges expected to shape 2025
Australia’s property market is set for a year of transformation in 2025, according to a major bank executive.
Denton Pugh (pictured above), head of home lending at National Australia Bank (NAB), has outlined his expectations for the housing sector, highlighting interest rate cuts, evolving buyer behaviours, and the pressing issue of housing supply as key themes for the year ahead.
“As we kick off a new year, many Australians are asking the same familiar questions – where are house prices heading, and when will conditions improve for buyers?” said Pugh, in comments shared recently with news.com.au.
“The big news this year is the Reserve Bank of Australia (RBA) is likely to start cutting rates,” he said. “After years of higher rates, cuts are expected to provide welcome relief for households while also helping many buyers increase their borrowing power.”
Inflation figures appear to support this outlook. Pugh noted that headline inflation has remained within the RBA’s target range for three consecutive months, the first time since 2021. He said this gives confidence that the central bank could begin cutting rates by May, if not sooner. However, higher borrowing costs over the past few years have left their mark, with many Australians priced out of the housing market.
“While this can create opportunity for buyers who are ready and able to act, it’s tough for those trying to get their foot on the property ladder,” Pugh said.
In response, Australians have been finding creative ways to enter the market. According to Pugh, some families are pooling resources, such as siblings purchasing homes together. Others are turning to rentvesting – renting where they want to live while buying an investment property in a more affordable location. There is also a growing trend of buyers looking at alternative property types, such as apartments and townhouses, or expanding their search to outer suburbs.
Pugh predicts house prices will rise modestly by around 4% this year, with Perth, Adelaide, and Brisbane leading the charge. Meanwhile, Sydney and Melbourne are expected to see slower growth initially but could pick up in the second half of the year if rate cuts materialise.
Despite optimism for buyers in 2025, Pugh acknowledged that Australia’s housing affordability and supply issues remain significant hurdles.
“Housing affordability and supply are long-term challenges that need long-term solutions,” he said. “It’s encouraging to see governments prioritise housing, but there’s still a long way to go. Initiatives to boost supply are a step in the right direction, but rising costs and feasibility are slowing progress.”
The bank executive called for a collaborative approach to tackling these challenges.
“There’s no simple fix, solving Australia’s housing challenges will take collaboration across the board. Business, government, and community groups need to work together to create more opportunities for Australians to find affordable homes.”
Looking ahead, Pugh sees both challenges and opportunities for buyers. He noted that increased housing stock has provided buyers with greater choice, but affordability remains a concern. For those considering entering the market, he advised careful planning and sticking to their budgets.
“Historically, when rates start to fall, we see confidence and activity lift in the market,” he said. “While this cycle may not bring the same dramatic changes we’ve seen in the past, it’s worth keeping a keen eye on the market as rates come down and activity increases. For those who’ve been waiting on the sidelines, this could be the year to make your move.”
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