The residential sector remains buoyant, supported by softening mortgage rates and persistent supply constraints in major urban centres. Meanwhile, listed property trusts (REITs) are regaining favour as defensive plays in a shifting rate environment, with industrial and diversified segments showing particular strength. Commercial property trends remain mixed but show signs of selective recovery in key sub-sectors.

This mid-year outlook offers a data-driven perspective on current conditions and explores where opportunities and risks may lie for property investors in the months ahead. From price movement and borrowing dynamics to REIT strategies and sector rotation, the path forward calls for careful positioning and sector-specific insight.

RBA Rate Direction & Market Reactions

In July, the RBA kept the cash rate on hold at 3.835%, maintaining a cautious tone despite inflation trending back toward its 2–3% target range (Reserve Bank of Australia, 2025). Labor market softening and global economic uncertainty have prompted economists to revise their forecasts, with most expecting one or two rate cuts before the year ends.

Market Expectation

Interest rate futures markets are currently pricing in the potential for one to two cuts by mid-to-late 2026. This is evident from the ASX 30-Day Interbank Cash Rate Futures chart, which suggests the market sees the RBA beginning its easing cycle as early as Q1 2026, assuming continued disinflation and slowing economic momentum.

Chart 3: ASX 30 Day Interbank Cash Rate; Source:ASX; 2025

This sentiment is supported by economists revising their forecasts downward, in response to:

• Labour market softening: Unemployment is gradually rising as businesses slow hiring (ABS, 2025).

Chart 1: Australia Job Vacancies and Unemployment; Source:Ai Group, ABS; 2025

• Consumer confidence dipping: With interest rates still elevated, consumer spending is weakening. Household consumption (accounting for over half of Australia’s GDP) continues to show signs of fatigue. Despite modest growth of 4.2% year-on-year in May 2025, the downtrend since early 2023 signals that higher borrowing costs are weighing on consumer behavior.

Chart 2: Household spending, current price, seasonally adjusted estimate; Source:ABS; July 2025

This trend is consistent with recent consumer sentiment data from Westpac and ANZ-Roy Morgan, which shows confidence levels well below neutral. Together, these indicators suggest a cautious household sector and subdued demand, which may reinforce the RBA’s case for holding or easing rates in the coming quarters.

• Global headwinds: China's economic slowdown and geopolitical uncertainties continue to pose downside risks to growth.

Inflation Trends

Chart 4: Australia Inflation Forecast; Source:RBA; May 2025

Inflation is expected to settle around the middle of our 2–3 per cent target range. Inflation has eased meaningfully, with Trimmed Mean CPI forecasted to reach 2.6% by June 2025, landing within the RBA’s target range. Headline CPI inflation is also expected to decline steadily into 2026.

This reinforces the narrative that monetary policy tightening has peaked, and that the next move is likely to be downward, albeit cautiously and dependent on incoming data.

Key Takeaway

As monetary policy enters a more data-dependent phase, the Reserve Bank of Australia’s recent decisions reflect a deliberate and measured approach to balancing inflation control with economic stability. While the May rate cut marked a notable shift in stance, the July pause underscores the Bank’s commitment to evidence-based calibration. The following takeaways summarise the key policy signals and market responses that will shape investment sentiment in the months ahead:

• RBA Maintains Pause at 3.835%
  After its first cut in May, the RBA chose to pause in July, signaling a cautious but dovish stance as inflation gradually returns to target and wage growth moderates.
• Markets Still Expect Further Easing
  Despite the hold, markets continue to price in at least one more rate cut by early 2026, reflecting expectations of slower economic growth and fading inflation pressure.
• Labour Market is Softening
  Employment growth has lost steam, and job vacancies are declining, supporting the case for future easing while giving the RBA space to monitor household conditions.
• Consumer Spending is Weak but Stabilising
  Household consumption remains soft due to cost-of-living pressures, but recent signs point to stabilisation as rate expectations improve.
• Investor Sentiment Reacts Modestly
  Bond yields and REITs responded positively to the May cut, but the cautious July pause has kept investor enthusiasm measured, reflecting uncertainty around the pace of easing.
• Professional Investors Eye Macro Data Closely
  With policy at a potential inflection point, market participants are watching key indicators (like inflation prints, wage data, and household demand) for signs of when and how fast the RBA may move next.

Sentiment Improves Slightly, Mortgage Trends Shift

Australia’s consumer sentiment has shown a modest recovery in July 2025, with the Westpac-Melbourne Institute Consumer Sentiment Index rising from 92.6 in June to 93.1 in July. This slight increase suggests that households are feeling marginally more optimistic compared to the previous month, possibly reflecting the lingering effects of the Reserve Bank of Australia’s rate cut in May.

Chart 5: Australia Consumer Confidence; Source:Trading Economics; 2025

Meanwhile, mortgage pressure remains a key concern, although recent trends show some relief. Australia's average mortgage rate has declined steadily, from 6.13% in December 2024 to 5.84% in May 2025, following the RBA’s policy adjustments. This downward movement may ease the burden for some borrowers, but mortgage rates remain elevated compared to long-term averages, continuing to weigh on household budgets, especially for those rolling off fixed-rate terms.

Chart 6: Australia Mortgage Rate; Source:Trading Economics; 2025

While sentiment is inching up and borrowing costs are gradually falling, many Australian households are still under financial strain. Ongoing mortgage repayments, elevated living costs, and uncertainty around future interest rate movements mean that any recovery in consumer confidence may remain fragile in the months ahead. 

Key Takeaways:

Following months of economic uncertainty, early signs of stabilisation are beginning to emerge in Australia’s household sentiment and borrowing landscape. The modest uptick in consumer confidence during July 2025, alongside a gradual decline in mortgage rates, reflects the early impact of the RBA’s shift in policy direction. However, these improvements remain tentative, particularly for mortgage holders navigating elevated repayment costs and financial pressures.

• Consumer confidence is recovering slightly, with the sentiment index rising from 92.6 in June to 93.1 in July 2025. This modest gain may be linked to improved rate expectations and easing inflation signals.
• Mortgage rates have declined from 6.13% in December 2024 to 5.84% in May 2025, offering partial relief to borrowers, though still above historical averages.
• Many households remain under pressure, especially those transitioning from low fixed-rate loans to significantly higher variable rates.
• Cost-of-living pressures and interest rate uncertainty continue to weigh on household spending capacity, limiting the momentum behind any sentiment recovery.
• For investors, these mixed signals underscore the importance of targeting stable markets with resilient fundamentals, particularly those offering strong rental performance and lower sensitivity to rate fluctuations.

While recent trends offer a more stable outlook than earlier in the year, the recovery in consumer and housing market confidence is likely to remain gradual and uneven. Investors and market participants should continue monitoring household data, policy signals, and lending conditions closely as the broader adjustment phase unfolds.

Housing Price Movement: What’s Ahead?

Australia’s housing market continues to show resilience. According to CoreLogic (via Reuters), national dwelling values rose by 0.6% in June 2025, marking the fifth consecutive monthly increase. This steady rise reflects both improving consumer sentiment and the easing of interest rates.

Chart 7: Australia Cotality Dwelling Prices MoM; Source:Trading Economics; 2025

Median home values have shown consistent growth, reaching A$894,745 in April, A$899,586 in May, and A$905,076 in June, representing a cumulative gain of approximately 1.2% over the quarter. 

Chart 8: Australian house prices; Source: CoreLogic, Your Mortage, 2025

This means property prices are steadily climbing month by month, signaling renewed buyer interest and market activity, even in a high-cost environment. For homeowners, it suggests increasing equity in their properties, while for prospective buyers, it may signal the importance of entering the market before prices rise further.

One of the underlying drivers of this upward trend is the slight reduction in mortgage rates, which dropped from an average of 6.13% in March to 5.84% in May. This has marginally improved borrowing capacity, allowing more buyers to remain active in the market despite ongoing cost-of-living pressures. Additionally, persistent housing supply constraints, particularly in urban centers, continue to limit availability and contribute to price growth. Consumer confidence also saw a modest improvement, with the Westpac-Melbourne Institute Index of Consumer Sentiment rising from 92.6 to 93.1, further reinforcing positive housing market sentiment.

Looking forward, property analysts anticipate that price growth may continue at a more moderate pace through the remainder of 2025, especially if interest rates remain stable or decline further. However, affordability challenges and regional variations will continue to shape the trajectory of housing prices across Australia.

Key Takeaways:

Australia’s residential property market continues to demonstrate underlying strength, despite lingering affordability pressures and economic uncertainty. Momentum has built through the first half of 2025, driven by moderating mortgage rates, sustained buyer activity, and ongoing supply constraints in major cities. As investor attention returns to housing performance, key indicators suggest cautious optimism for the months ahead.

• National dwelling values rose by 0.6% in June 2025, marking five consecutive months of growth and signalling continued demand across core markets.
• Median home prices reached A$905,076 in June, up from A$894,745 in April, reflecting a quarterly increase of approximately 1.2%.
• Declining mortgage rates (from 6.13% in March to 5.84% in May) have modestly improved borrowing power, helping to sustain buyer momentum despite cost-of-living challenges.
• Supply remains tight in many urban areas, placing upward pressure on prices and contributing to capital growth, particularly in high-demand regions.
• Consumer sentiment rose to 93.1 in July, suggesting increased confidence around household finances and housing decisions.
• Market resilience continues, but regional variation persists, with price growth likely to moderate as affordability constraints and interest rate uncertainty linger into H2 2025.

Looking ahead, housing market activity is expected to remain stable, though more measured. Investors should focus on areas with structural undersupply, demographic tailwinds, and sustainable rental yields. While the broader outlook is cautiously positive, strategic positioning will be essential amid shifting interest rate expectations and variable affordability across regions.

REITs & Property Investment Strategy

The Australian Real Estate Investment Trust (A-REIT) sector has shown notable strength in 2025. The S&P/ASX 200 A-REIT Index rose by approximately 6.9%, climbing from 1,718.45 at the end of December 2024 to 1,837.07 by July 22, 2025. This steady upward movement reflects improving investor sentiment and increasing demand for income-generating property assets, particularly in industrial and diversified trusts. As the interest rate environment stabilises, A-REITs are regaining appeal as a defensive investment strategy, offering potential for both yield and capital growth.

Chart 9: S&P/ASX 200 A-REIT December 2024; Source: S & P Global, Your Mortage, 2025

Chart 9: S&P/ASX 200 A-REIT July 2025; Source: S & P Global, Your Mortage, 2025

Industrial and logistics REITs continue to lead the charge. CBRE’s Q1 2025 report shows a +0.8% quarter-on-quarter increase in face rents, despite growing incentive packages, indicating strong underlying demand for industrial space (CBRE Q1 2025). This rent growth, although modest, is meaningful in a sector where yields remain attractive and supply remains constrained.

Retail and diversified REITs are also benefiting from renewed interest. For example, Charter Hall Retail REIT (CQR) reported a net property income increase of 3.0% in H1 FY25, with occupancy holding firm at 98.7% across its convenience-centre portfolio and specialty leasing growth of 3.8% (Charter Hall Retail REIT H1 FY25). This performance highlights the resilience of essentials-led retail amid changing consumer patterns.

The broader strategy for investors is becoming increasingly selective. REITs with low leverage, defensive tenant bases, and exposure to sectors with structural tailwinds (such as industrial, healthcare, and convenience retail) are best positioned to deliver stable yield and capital growth through the remainder of 2025. As rate pressures ease and economic stabilization continues, these trusts offer a compelling blend of income and diversification within balanced portfolios.

Key Takeaways:

The Australian REIT sector is gaining renewed momentum in 2025, buoyed by improving market sentiment, sector-specific tailwinds, and stabilising monetary conditions. As investors recalibrate their portfolios in response to easing rate pressures, A-REITs are emerging as a strategic option for those seeking income, resilience, and diversification.

• The S&P/ASX 200 A-REIT Index has risen by 6.9% YTD, reaching 1,837.07 in July 2025, an indication of growing investor confidence and improved earnings outlooks across listed property trusts.
• Industrial REITs continue to outperform, supported by a 0.8% QoQ increase in face rents, strong logistics demand, and limited supply, making them a cornerstone of defensive growth strategies.
• Retail and diversified REITs are showing resilience, with essentials-led portfolios maintaining high occupancy and moderate leasing growth. Charter Hall Retail REIT, for instance, reported 3.0% net income growth and 98.7% occupancy in H1 FY25.
• REITs with low gearing and defensive tenant mixes (particularly in sectors like healthcare, logistics, and convenience retail) are best positioned to weather macroeconomic shifts and deliver consistent returns.
• Investor interest is shifting toward quality over broad exposure, favouring trusts with high asset quality, embedded rental growth, and sector-specific demand advantages.

As Australia’s economic outlook stabilises and interest rates plateau, the A-REIT sector is likely to remain an important component in diversified income-focused portfolios. Selectivity will remain key, with a focus on structural growth sectors and capital discipline critical to navigating the balance of 2025.

What This Means for Investors

At mid-year 2025, Australia’s property market presents a mixed but promising landscape for investors. Easing inflation and a potential shift toward lower interest rates are helping restore confidence, while housing price growth and REIT resilience underscore selective strength in the market.

For residential investors, declining mortgage rates, down from 6.13% in December 2024 to 5.84% in May 2025 (TradingEconomics), have modestly improved borrowing conditions. However, affordability pressures and cautious consumer sentiment mean opportunities may be best targeted in resilient urban markets and undersupplied segments such as build-to-rent or family housing in growth corridors.

Commercial investors should continue prioritising “flight-to-quality” assets, especially those in industrial, logistics, and premium-grade office categories with strong sustainability credentials. Retail remains nuanced, with essentials-focused centres showing stability, while discretionary-led segments still face challenges.

On the REIT front, the 6.9% year-to-date growth in the S&P/ASX 200 A‑REIT Index (S&P Global) demonstrates a return of confidence. Investors may consider selectively increasing allocations toward low-leverage, income-stable REITs with exposure to logistics, healthcare, and essentials-led retail.

In summary, investors in H2 2025 should adopt a selective, fundamentals-driven approach, leveraging macro stability while remaining mindful of lingering consumer fatigue and structural shifts in property demand.

Conclusion

As Australia’s property market reaches the halfway point of 2025, the outlook is cautiously optimistic. The RBA’s measured policy stance, easing mortgage rates, and resilient housing and REIT performance paint a more stable investment landscape. However, challenges remain, from cost-of-living pressures to sectoral divergence within commercial property.

For investors, the second half of the year will demand disciplined portfolio positioning. Those who focus on quality assets, anticipate rate movements, and stay aligned with structural demand trends will be best placed to capture long-term value.

References

1. ASX. (2025). RBA rate tracker. https://www.asx.com.au/markets/trade-our-derivatives-market/futures-market/rba-rate-tracker

2. Australian Bureau of Statistics. (2025, May). Labour account Australia (March quarter 2025). https://www.abs.gov.au/statistics/labour/labour-accounts/labour-account-australia/latest-release

3. Australian Bureau of Statistics. (2025, June 5). Monthly household spending indicator (June 2025). https://www.abs.gov.au/statistics/economy/finance/monthly-household-spending-indicator/latest-release

4. Australian Industry Group. (2025, July 29). Labour market dynamics in Australia. https://www.aigroup.com.au/resourcecentre/research-economics/factsheets/factsheet-labour-market-dynamics-in-australia

5. CBRE. (2025, April 6). Figures Australia: Industrial and logistics Q1 2025. https://www.cbre.com.au/insights/figures/figures-australia-industrial-and-logistics-q1-2025

6. Charter Hall. (2025, February 14). Charter Hall Retail REIT 2025 half-year results – Board appointment. https://www.charterhall.com.au/News/news-article/2025/02/13/charter-hall-retail-reit-2025-half-year-results---board-appointment

7. Reserve Bank of Australia. (2025, May). Statement on monetary policy – May 2025. https://www.rba.gov.au/publications/smp/2025/may/

8. S&P Global. (2025). S&P/ASX 200 A-REIT. https://www.spglobal.com/spdji/en/indices/equity/sp-asx-200-a-reit/#overview

9. Trading Economics. (2025). Australia consumer confidence. https://tradingeconomics.com/australia/consumer-confidence

10. Trading Economics. (2025). Australia CoreLogic dwelling prices MoM. https://tradingeconomics.com/australia/corelogic-dwelling-prices-mom

11. Trading Economics. (2025). Australia mortgage rate. https://tradingeconomics.com/australia/mortgage-rate

12. Your Mortgage. (2025, July 2). What’s Australia’s median house price in July 2025?. https://www.yourmortgage.com.au/compare-home-loans/median-house-prices-around-australia