House prices across Australia have continued to rise, coinciding with recent interest rate cuts.

Analysts project that the combined dwelling prices in capital cities might increase by approximately 6% to 10% by late 2025 or early 2026.

According to data from Cotality, formerly known as CoreLogic, the national Home Value Index recorded a 0.5% increase in May 2025, resulting in a cumulative rise of 1.7% over the first five months of the year.

All capital cities reported growth during May, with each posting at least a 0.4% rise.

Eliza Owen, head of research at Cotality, stated that interest rate reductions are contributing significantly to house price increases, both from cuts already implemented and those anticipated in the coming months.

Major banks expect another two rate cuts before the end of the year, which could drive property values higher and increase market activity.

Owen indicated that while a 6% to 10% rise is feasible by early 2026, affordability issues may temper those expectations.

"Lower interest rates do enhance borrowing capacity; however, current median house values in capital cities exceed $1,000,000, presenting affordability challenges for many households," Owen noted.

She also highlighted that factors such as rising unemployment and stagnating wage growth could dampen price growth.

Louis Christopher, head of research at SQM, echoed these sentiments, forecasting a similar range of 6% to 10% growth in capital city dwelling prices for the next year.

He anticipates a further cash rate cut by the Reserve Bank of Australia (RBA) at its upcoming meeting in July, which could exert upward pressure on prices as early as the September quarter.

Christopher's forecasts for dwelling values across various cities include potential increases of 3% to 7% in Sydney, 2% to 6% in Melbourne, and 15% to 20% in Perth.

He noted a recent increase in auction clearance rates and greater activity levels, indicating a return of more home buyers to the market.

Factors contributing to the increased demand for housing include a post-election boost in buyer sentiment and persistent population growth.

SQM's data shows that while the federal government plans to address housing supply by aiming to complete 1.2 million new homes by FY29, there may be a shortfall of 250,000 to 400,000 dwellings against this target due to ongoing low levels of new construction.

Mortgages are being influenced by the current rate cuts, leading to greater loan accessibility.

Gino Farina, founder of Bondi Broker, noted seeing increased first-time buyer interest, with buyers adjusting their expectations according to affordability despite the challenging environment for investors.

Cotality's index shows that the recent monthly increase follows a slight decline of 0.4% over the three months ending January 2025. Despite this, annual growth in the national index has slowed to 3.3%, the lowest rate since August 2023, with only Melbourne and Canberra showing a decline in annual dwelling values.

Regional markets are observing positive growth trends, particularly in regional South Australia, with a 3.8% increase recorded in values over the first five months of 2025.

Concurrently, the rental market is experiencing a slowdown.

Sydney and Melbourne are among the weakest rental markets following a period of rapid growth, with rental rates rising approximately 3% to 3.5% over the last year, a marked decrease from previous rates of 8%.

Despite low vacancy rates in each capital city, indicating persistent demand, growth in rental prices is projected to continue decelerating, leading to more shared housing arrangements in response to high rental costs.