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As we move through 2025, we’ve seen signs of steady recovery for the housing market. House prices have increased modestly in each of the last five months, though they are still lower than a year ago. New listings have been a major factor in 2025, rising rapidly to see stock levels around decade highs. That’s providing plenty of choice for buyers and limiting price growth. 

Thus, overall momentum remains sluggish, and the supply-demand imbalance is expected to hold back house price growth in the near term. The soft labour market also continues to impact household confidence. 

That said, there are signs house prices may begin to accelerate later in the year once the excess inventory is worked through, as the labour market is showing early signs of stabilisation, and interest rates have fallen. 

While purchasing affordability has improved as income growth has outpaced increases in house prices in recent years, it’s still relatively stretched, which will limit the extent to which house prices can outpace incomes in the medium term. 

The Reserve Bank’s new debt-to-income limits also mean that we can’t have a repeat of the 2021 experience should interest rates fall sharply. Borrowing capacity won’t ramp up in the same way.

Households remain cautious for now – not just about buying houses but all kinds of large purchases. House sales are lifting but are only just back to around historically average levels. Investor activity has increased, but owner-occupier participation remains subdued, partly due to limited housing market movement. 

Looking ahead, while things are patchy now, the outlook is cautiously optimistic. We see a bit of downside risk to our 2025 house price growth forecast of 6% year on year, but the recovery is definitely in train.