2025 in review: Capital city markets surge, with 2026 set to deliver again - Property Investor

From Perth’s breakout surge to Melbourne’s sluggish year, Australia’s capital city property markets diverged sharply in 2025, setting the stage for a more selective and opportunity-driven 2026.

Australia’s residential property market closed out 2025 on a broadly positive footing, with most major capital cities recording solid price growth after several years of uneven performance.

Falling interest rates, persistently tight housing supply and renewed buyer confidence combined to drive values higher, though the gains were far from uniform across the country.

According to PropTrack’s Home Price Index, national dwelling values rose 7.5 per cent over the year, marking the strongest annual growth rate since mid-2024 and extending the current upswing to ten consecutive months.

Data from Cotality also underscored the scale of the rebound, with the total value of Australia’s residential property market approaching $12 trillion by the end of the year.

Beneath the national headline, however, the story of 2025 was one of divergence.

Mid-sized capitals once again outperformed, while Australia’s two largest markets, Sydney and Melbourne, lagged behind their smaller peers.

Powerhouse Perth

Perth emerged as the standout performer in 2025, cementing its position as the nation’s strongest capital city market.

Perth property prices are currently at a record high.

Monthly growth consistently led the country through the second half of the year, with values rising sharply as demand continued to outstrip supply.

Population inflows, a historically tight rental market and limited new housing construction combined to create sustained upward pressure on prices.

By year’s end, Perth had not only erased years of underperformance in the 2010s but had joined the ranks of Australia’s more expensive capitals, drawing strong interest from both owner-occupiers and investors.

Brisbane’s Olympian performance

Brisbane also delivered another strong year, building on momentum established earlier in the cycle.

Price growth remained steady throughout 2025, supported by ongoing interstate migration, major infrastructure investment and a housing market that still offered relative affordability compared with Sydney and Melbourne.

Detached house prices continued to rise, while the unit market performed particularly well as buyers adjusted expectations in response to affordability constraints.

By late 2025, Brisbane’s median house price had pushed decisively above the $1 million mark, reinforcing its status as one of the country’s most resilient growth markets heading into 2026.

Adelaide continues to shine

Adelaide was another consistent performer, recording some of the strongest annual capital gains among the major cities.

While growth moderated slightly in the latter part of the year, values remained near record highs.

Demand was underpinned by a combination of affordability, limited housing supply and steady population growth, factors that helped shield the market from the volatility seen elsewhere.

Adelaide’s relatively narrow price gap between suburbs continued to appeal to buyers seeking stability and long-term growth rather than speculative returns.

Affordability constrains Sydney property market

In contrast, Sydney’s performance in 2025 was more subdued.

While prices did edge higher, growth was modest and highly localised.

More affordable outer-suburban areas and pockets with strong transport links attracted demand, particularly from first home buyers and investors targeting properties under $1.5 million.

The broader market, however, remained constrained by affordability pressures, with borrowing capacity limits weighing heavily on buyer activity.

As a result, Sydney finished the year trailing the national average for growth, despite its continued appeal as Australia’s largest and most liquid housing market.

Melbourne now the market’s minnow

Melbourne was the weakest performer among the major capitals in 2025.

Price growth remained sluggish and uneven, with values rising only marginally over the year.

Affordability challenges, a slower economic recovery and shifting population dynamics all contributed to the city’s softer conditions.

While some inner and middle-ring suburbs showed signs of stabilisation late in the year, Melbourne continued to underperform relative to the rest of the country, leaving it with ground to make up in the next phase of the cycle.

Buyers shift towards units

Several common forces shaped market outcomes across the capitals in 2025.

Interest rate cuts earlier in the year improved borrowing capacity and lifted buyer confidence, particularly among investors and upgraders.

At the same time, housing supply remained constrained, with construction delays and elevated building costs limiting the flow of new dwellings into already tight markets.

These pressures were most acute in Perth and Brisbane, where population growth significantly outpaced new housing delivery.

Affordability also played a defining role.

Buyers increasingly shifted toward units and townhouses, especially in markets where detached housing had become prohibitively expensive. This trend was evident in Brisbane, Perth and parts of Adelaide, and is likely to remain a key theme in 2026.

Property market’s 2026 prospects

Looking ahead, most analysts expect the momentum established in 2025 to carry into the new year, though at a more measured pace.

Perth, Brisbane and Adelaide appear well placed to continue outperforming, supported by strong demand fundamentals and ongoing supply constraints.

Sydney and Melbourne may see more modest growth, with opportunities increasingly concentrated in specific suburbs rather than across the broader market.

The key risks for 2026 centre on affordability and household borrowing capacity. With prices already significantly higher, further growth will depend on income gains, additional rate relief or meaningful improvements in housing supply.

Policy settings around planning, migration and construction will also play an important role in shaping outcomes.

Even so, 2025 reinforced the resilience of Australia’s property market.

While the cycle has clearly favoured some cities over others, the broader trend remains upward.

For buyers and investors willing to be selective, the conditions heading into 2026 suggest opportunity remains, particularly in markets where growth is being driven by genuine demand rather than speculation.