Australia’s housing market finished spring with strong momentum, but Westpac’s latest Housing Pulse warns the outlook is far from settled as affordability, prudential policy, and rate expectations start to bite.
Head of Australian macro‑forecasting Matthew Hassan and economist Neha Sharma (pictured left to right) say a mix of tight on‑market supply, resilient demand and supportive policy underpinned the spring surge, but the next phase will be heavily shaped by macro‑prudential settings, labour‑market trends, and the RBA cash‑rate path.
“Our latest Housing Pulse shows the market powered through spring with strong momentum, buoyed by tight on-market supply, resilient demand, and supportive policy," Hassan and Sharma said.
"Yet the outlook is far from settled. Affordability pressures, evolving macroprudential settings, and broader economic trends – including labour market dynamics and the RBA cash rate outlook – will determine whether recent strength carries into the new year.”
Westpac noted that the pick‑up comes “against a backdrop of a recent uplift in residential construction activity” and that “Sydney and Melbourne [are] already showing signs of cooling, [so] summer may mark a shift in gears.”
Westpac has lifted its 2025 national dwelling price forecast to 8% from 6%, with Brisbane and Perth expected to lead at roughly 14%.
For 2026, forecasts have been trimmed to 6% (from 9%), reflecting delayed rate cuts, a worse starting point for affordability and slower population growth. Growth is projected to ease further to around 5% in 2027, returning to long‑run averages in real terms.
“If current growth tracks as forecast, Perth’s median dwelling price could approach $960k by end-2027, overtaking Melbourne and Adelaide to become the third most expensive capital city in Australia,” the economists said.
Westpac expects the median dwelling price by 2027 to be around $1.3m in Sydney, $1.05m in Brisbane, about $960k in Perth, followed by Melbourne ($914k), Adelaide ($882k) and Hobart ($795k).
City‑level divergences have “re‑emerged” as a key theme.
“The ‘spring high’ season of the Australian housing market has certainly not disappointed this year. Shifts in response to rate cuts and improving real incomes with only a modest increase in on-market supply have continued to support price growth into year-end.”
Over the past three months, the major‑capital‑city measure recorded a 3.2% gain – “the strongest quarterly pace in more than two years” – lifting annual growth to 7.1% from 3.5% mid‑year. Houses are up 7.9% year‑on‑year, units 4.5%.
“Growth divergence is re-emerging as a theme across the major capitals. Smaller capitals are again outperforming their larger counterparts," the economists said. "Perth and Brisbane lead the pack, with dwelling prices up 6.9% and 5.4% over the past three months. Sydney and Melbourne have seen more modest gains of 2.2% and 1.5%, while Adelaide sits in the middle at 4.1%.”
“Darwin has also been a standout performer recently, up 5.9%qtr, with Hobart and Canberra showing a recent firming, both rising 2.1%. These variations highlight the influence of local supply dynamics and affordability pressures.”
Housing‑related sentiment has cooled, even as first‑home buyers turn more positive.
The Westpac–MI ‘time to buy a dwelling’ index fell 1.4% over the three months to November to a near‑neutral 96.4, as expectations for further rate cuts eased. In contrast, first‑home buyer sentiment jumped 6.1%, boosted by the expanded home‑buyer scheme, while price expectations remain at record highs despite rising unemployment concerns.
The Westpac–MI Consumer House Price Expectations Index rose another 5% over the three months to November to reach an all‑time high of 172.4.
This sits alongside mounting labour‑market anxiety. The Westpac–MI Unemployment Expectations Index jumped 11% to 139.5 in November – its highest level since the pandemic and well above the long‑run average of 129.2 – after the surprise rise in the unemployment rate to 4.5% in September, with younger cohorts, tradespeople, and the unemployed showing the sharpest deterioration in sentiment.
Risk appetite has also shifted, with the Westpac Consumer Risk Aversion Index falling 10% between June and September on the back of lower interest rates, but remaining above historical norms as consumers stay wary of taking on riskier asset classes.
Auction activity has started to taper as the spring selling season winds down. “Melbourne clearance rates peaked near 75% in mid-October but have since eased to around 65%, slightly above long-run averages. Sydney has held within a tighter 68–73% range over the past three months. In non-seasonally adjusted terms, clearance rates are running around 61–63% in both cities.”
On the supply side, more sellers have been coming back to market, but not enough to fully ease pressure.
“On the supply side, new listings have lifted 4.5% in the three months to November, reversing a mid-year decline of –2.4%. The improvement has been driven by a 5.4% rise in house listings, with new unit listings up 1.3%,” the economists said.
“Despite this rebalancing, sales continue to outpace new listings, with the sales-to-new-listings ratio at 1.36. Total on-market supply remains tight, equivalent to just 2.1 months of sales, a key factor underpinning price resilience.”
Westpac’s broader Cashflow Gauge points to an improving, but still constrained, construction backdrop. After several years of high costs, insolvencies and project delays, cash‑flow conditions in construction are now back above pre‑COVID levels – but builders still face elevated material costs, acute skill shortages, and capacity constraints that will limit how quickly new housing supply can ramp up.
Dwelling approvals have lifted – running at an annualised 189k in Q3 versus 179k over the past two years – but remain below the pre‑COVID average of 214k, and multi‑unit projects still take much longer to complete than detached houses.
Westpac highlights a trio of policy and prudential changes set to shape conditions into 2026:
The expanded 5% deposit scheme for first-home buyers began in October, with government data suggesting a strong initial uptake. Its overall impact on demand remains uncertain, however, as some of these buyers may have been able to purchase regardless.
The Help to Buy scheme launches 5 December, offering government contributions of 30–40% of the purchase price for eligible buyers entering with just a 2% deposit. Unlike the 5% scheme, Help to Buy includes property price and income caps.
Westpac notes this latest macro‑prudential move “is not currently binding at an industry level” – with high‑DTI lending around 5–6% overall – but says distributional impacts are likely, especially for investors and more‑leveraged first‑home buyers.
Investor credit growth is running at 7.8% year on year, with investor lending up more than 20% over the past year in NSW and Victoria, compared with 8–9% for owner‑occupiers.
“These regulatory changes, combined with government initiatives, will shape market dynamics into 2026 against the backdrop of a delayed RBA cash rate adjustment,” the Westpac economists said.
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