Logic would indicate the outcome is clear: a significant increase in real estate prices.

Although property prices are anticipated to rise following the Reserve Bank’s move to lower the cash rate to 3.85 percent on Tuesday, a repeat of the extremely high rises from a few years back seems improbable.

“The conclusion is that we expect property prices to keep increasing into 2025, but it’s possible they won’t grow as strongly as they did in 2024,” Cotality head of research Eliza Owen explained to 9news.com.au.

Interest rates aren’t the be-all and end-all for prices, particularly when you look away from Sydney and Melbourne.

“The reduction in interest rates historically has had the biggest impact on higher-end property markets on the east coast,” Owen said.

“There’s less of a correlation with property markets in Western Australia, Adelaide and parts of Queensland, potentially because they’re more tied to things like commodities performance, for example, in WA.

“And so what we saw during interest rate rises is that Perth, Adelaide and Brisbane actually had really strong performance.

“There’s no guarantee that they’ll get back to that double-digit growth just because interest rates are falling now.”

Nationally, property prices rose 5 per cent last year.

Owen says something “around that or a little bit less” is on the cards this time around, while AMP forecasted last week that there would be a 3 per cent rise for the year. 

A more moderate increase will no doubt come as welcome news to Australians hoping to finally buy their first home in the near future, but it shouldn’t be mistaken for a sign the nation’s housing market is getting to a point where it’s no longer considered a crisis.

Just a day after the RBA cut rates, the National Housing Supply and Affordability Council released its annual report on the state of the housing system.

While there were some silver linings – affordability is expected to stabilise and potentially even improve over the next four years, and social and affordable housing stock is increasing – the level of overall supply, the main culprit for rising unaffordability for buyers and renters, is in a poor state.

“The supply of new housing is near its lowest level in a decade,” the report states.

“177,000 dwellings were completed in 2024, falling significantly short of underlying demand for housing, which was estimated at around 223,000 for the same period.

“This shortfall added to already significant unmet demand in the system.”

The report also found that not only is Australia set to undershoot the federal government’s mid-2029 goal of building 1.2 million new homes by some 262,000 dwellings, we’re also on track to fail to meet underlying demand for new homes by 79,000.

Markets are expecting several more rate cuts by early next year, and the federal government’s housing policy allowing buyers to purchase their first home with a 5 per cent deposit, which experts say will do little but push prices up further, starts in January.

On top of low supply, that seems like the perfect storm for another price boom. So why aren’t double-digit increases on the cards once again?

Owen says soft economic outlooks, global uncertainty and normalising migration levels will all help keep a lid on prices.

And ultimately, after years – and, indeed, decades – of surging costs, there’s only so much Australians can afford to spend on housing.

“At the end of the day, you can only really have this ever-increasing demand if people can afford to get into the market,” Owen says.

“And I think there is a scenario where the rate cuts provide a bit of a sugar hit for market values, but they’ll ultimately be weighed down longer-term by affordability constraints and the potentially softer economic outlook.

“It’s a mix of headwinds and tailwinds, and obviously it’s difficult to know where all of those factors are going to land… but we would expect off the back of this mix of factors that home values would continue to rise.”