Australian home prices have continued to rise, reaching a new record high last month, amid falling interest rates.
While all capital cities saw prices increase in May — with Sydney, Brisbane, Adelaide, Perth and Darwin all now at price peaks — Melbourne had the strongest monthly rise of 0.79 per cent, according to PropTrack's latest Home Price Index.
The report, released this week, states national home prices lifted 0.39 per cent — the fifth consecutive month of growth — meaning they're up 4.12 per cent year-on-year.
"With interest rates falling, price momentum has increased and broadened, with all capitals seeing prices lift in May," REA Group Senior Economist and report author Eleanor Creagh said.
“Price growth across the capitals is starting to converge. Melbourne, which previously lagged the other capitals, is now seeing home price growth pick up."
Melbourne is continuing to recover after a "prolonged period of softer growth", the report says, with the median home value sitting at $782,000. However this remains 2.85 per cent below the city's peak. It was also the only capital city to record a drop (-0.38 per cent) in year-on-year home prices in May.
Meanwhile, Perth's median home value was $787,000 — representing the first time in a decade that it has overtaken Melbourne. Perth had a monthly rise of 0.27 per cent, while Brisbane lifted 0.24 per cent.
"Cities such as Perth and Brisbane are now seeing growth moderate after strong outperformance. The growth seen in all capital cities is underpinned by improved buyer sentiment and renewed confidence following interest rate cuts," Creagh said.
Along with Melbourne, Adelaide and Sydney led the monthly rises, at 0.52 and 0.39 per cent.
Outside the capital cities, regional prices rose 0.25 per cent, according to the report, with annual growth of 5.19 per cent outpacing the combined capitals (3.71 per cent).
It comes after interest rates were cut for a second time this year in May, to their lowest since 2023, which Creagh said has "lifted borrowing capacities and boosted buyer demand".
"With further price increases and rate cuts expected, prospective buyers are moving off the sidelines and accelerating their purchasing decisions."
Analysts say the Reserve Bank of Australia (RBA) could cut rates at its next meeting in July, despite its plan to lower inflation, as GDP figures reveal stagnation in the economy.
OECD downgrades economic growth forecast
Meanwhile, the Organisation for Economic Cooperation and Development (OECD) warned Australia to boost housing supply and address falling affordability as it revealed a downgrade to its economic growth forecast for 2025.
It said Australia's gross domestic product would grow at 1.8 per cent this year, down 10 basis points from its prediction in March, as United States President Donald Trump's tariffs hit demand for Australian exports — especially if China experiences a marked slowdown.
The organisation downgraded its global growth forecasts from 3.1 per cent to 2.9 per cent this year.
But economic growth is expected to accelerate to 2.2 per cent next year — an increase from its prediction earlier this year and in line with the OECD's estimate of Australia's economic potential.
The OECD's forecast for 2025 is lower than the Reserve Bank's estimate of 2.1 per cent but in line with its 2026 prediction.
Inflation will remain close to target, averaging 2.3 per cent over 2025 and 2026, the OECD projected.
That's below RBA estimates, which predict headline inflation accelerating to 3.1 per cent by the end of the year. The OECD said the central bank would be warranted to continue easing interest rates, but must be nimble to change path in case of unexpected external shocks.
Looking ahead, Creagh warned to expect further home price growth throughout the year.
"While stretched affordability will remain a constraint, a chronic lack of new housing supply, population growth, and targeted buyer incentives are expected to keep upward pressure on prices," Creagh said.
"In combination with interest rates continuing to move lower, these factors are likely to drive further price growth throughout the remainder of 2025.”
— With additional reporting by the Australian Associated Press.
