Home price growth accelerates as Perth leapfrogs Melbourne

A second interest-rate cut has lit a fire under house prices, triggering a big rise in values as buyers jump back into the market.

Property prices rose in all the capitals in May, according to the latest PropTrack Home Price Index, hitting a new record high at the national level and in most cities.

But it was Melbourne that topped the tables for property price growth, building on the previous month’s gains and further entrenching the city’s home-price recovery as more than just a blip.

Home prices in Melbourne rose 0.79% last month, with faster growth for houses (up 0.87%) than for units (up 0.31%).

The strong price growth last month comes after a prolonged period of softness in Melbourne, with home values still a little lower than a year ago and almost 3% lower than the peak in March 2022.

Despite improving conditions in Melbourne, the city’s median home value has been overtaken by Perth for the first time in a decade, even though price growth is moderating in the Western Australian capital.

Perth’s median home value is now higher than Melbourne’s. Picture: Getty

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Perth’s median dwelling value, which includes both houses and units, is now $787,000 – a figure $5,000 higher than Melbourne’s median.

Home prices in Perth kept rising in May, but monthly price growth was slower and annual growth has eased, albeit to a still-brisk 8.4%.

How home prices changed around Australia in May

Adelaide remains the strongest city for annual price growth (11%) followed by Perth and Brisbane (both 8.4%).

Prices in Darwin (up 5.5%) have grown faster than in Sydney (up 2.7%), Hobart (up 2.6%) and Canberra (up 1.5%) in the past year, while Melbourne remains the only capital recording negative annual growth (down 0.4%).

REA Group senior economist Eleanor Creagh said sentiment and buyer confidence had improved following rate cuts, particularly in markets that lagged last year.

“Since the Reserve Bank’s February rate cut, price momentum has reaccelerated and broadened, with all capitals seeing prices lift,” she said.

“Markets like Melbourne and Hobart are staging notable rebounds after underperforming in 2024, buoyed by improved borrowing capacities and heightened buyer activity.”

The prospect of more cuts to come was coaxing more buyers to enter the market, Ms Creagh said.

“With further rate cuts expected, prospective buyers are moving off the sidelines, accelerating purchase decisions.”

“A chronic lack of new housing supply, population growth and target buyer incentives are expected to keep upward pressure on prices.“

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Melbourne real estate agent and Nelson Alexander Carlton North partner James Pilliner said both buyers and sellers had become more active since rates were cut, although some owners were holding back until prices picked up further.

“There’s definitely more interest from buyers than there was 12 months ago,” he said.

“That’s heavily linked with the forecast for interest rates, and the cost of living pressures seem to be easing a bit.”

“More people are selling now that there has been a rate reduction, but there’s still a large amount of potential sellers holding back because they want to ride the wave of the potential rate drops.”

Mr Pilliner said “a tiny little bit of FOMO” had crept into the market.

“There’s a fear that when interest rates drop further, buyers might miss out and that’s pushing people to make a decision a little quicker.”

The Agency WA property partner Lisa Barham said the Perth market remained busy and properties were still selling quickly.

“[Rate cuts] will most certainly help people in that higher end with borrowing capacities,” she said.

A shortage of homes on the market has held some homeowners back from making a move, said Perth real estate agent Karl Butler. 

“There’s people who would like to put their property on the market but they’ve got to have a viable option to move to,” he said.

Affordable markets top the charts

Buyers hamstrung by a combination of high interest rates and rapidly rising property prices in the past few years have sought out more affordable markets.

This has increased demand and lead to stronger growth in regions where properties are cheaper, Ms Creagh said.

“Despite moving lower again this month, interest rates have been sustained at high levels for much of the past year, and home prices have risen significantly in recent years whilst growth in household incomes has not kept up,” she said.

“More affordable regions have outperformed over the past year, with strength in home buying demand buoyed in these regions.”

All of the top 10 strongest performing regions in the past 12 months were located in Queensland and South Australia and had median home values of less than $750,000.

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Western Australian regions, which dominated the list of top-growth markets a year ago, have now slipped out of the top 10 for the first time since February 2023.

“Cities such as Perth and Brisbane are now seeing growth moderate after strong outperformance,“ Ms Creagh said.