House Prices to Increase Another 5 Percent by Year’s End: KPMG

A real estate sign is seen at property in Marrickville in Sydney, Australia, on Sept. 6, 2022. Lisa Maree Williams/Getty Images

The growth of Australian property prices is showing no sign of slowing down, with KPMG forecasting prices to increase another 5 percent before the end of year.

It comes after the country’s median property price in the capital cities reached a record high of $851,000 (US$522,000) in May, according to the PropTrack home price index.

While KPMG expects a rise of 5.3 percent across capital cities and 4.5 percent across the country by December, it noted the disparity in growth between markets.

Houses and units in Perth will see the most rapid rise in values at up to 10 percent, while Darwin is set for more modest growth under 1.7 percent.

Behind Perth’s red-hot market are Brisbane and Adelaide, where house prices are projected to increase by up to 7.9 percent by the end of the year.

Houses in the two most populous cities, Sydney and Melbourne, are expected to grow by 4.9 percent and 2.8 percent, respectively.

KPMG also found that Sydney, Melbourne, Canberra, and Darwin will see greater growth in 2025 compared to this year, while the rate of increase will ease in other capital cities.

This is based on its prediction that the Reserve Bank of Australia (RBA) will begin cutting interest rates next year.

“After the exceptional house price increases we have seen in several capital cities over the past 12 months, we do forecast a slowdown in the rate of growth, given the drop in migration, the delayed impact of high interest rates, and a predicted increase in unemployment over the rest of this year,” KPMG chief economist Brendan Rynne said.

“Foreign investment activity has also yet to regain its levels of two years ago. But overall we will still see solid price gains over the next 18 months, especially in 2025, as the RBA starts to introduce interest rate cuts, as we anticipate.”

Other contributing factors include a continued lack of housing supply, high construction labour costs, and high rental prices.

Meanwhile, Domain’s Forecast Report expects growth of up to 6 percent for houses and 4 percent for units by the end of the 2024-25 financial year.

“Most capital cities are anticipated to have record-high house and unit prices by the end of FY25, apart from Melbourne and Canberra,” the report said.

Sydney’s median house price will surpass $1.7 million and Brisbane will have almost reached $1 million in the same period.

RBA May Increase Rates

In contrast to expectations that interest rates will fall, Phil O'Donoghue, the chief economist of Deutsche Bank, believes the opposite will happen.

He predicts the RBA will resume hiking the cash rate in August.

“Underlying inflation is intolerably high in Australia. In fact, Australia is the only G10 country where underlying inflation has increased since December,” he said.

According to data from the Deutsche Bank, Australia’s core inflation has risen by 0.4 percent since December. This is compared to a drop in core inflation by 0.2 percent in New Zealand and 1.7 percent in the UK.

While the RBA has maintained the cash rate at 4.35 percent since November 2023, the board has yet to rule out further hikes.