Westpac: Plenty of would-be buyers waiting for interest rate falls

New data from Australia’s second-biggest bank suggests large numbers of investors and upgraders (existing owner-occupiers who want to move) are set to enter the property market over the next year as interest rates fall.

Westpac Bank’s latest housing price forecasts appear to show this trend resulting in strong price growth in most Australian cities, particularly Melbourne, next year. 

Forecasts

Westpac’s Head of Australian Macro-Forecasting, Matthew Hassan, says “2025 still has the feel of a ‘transition year’” for property markets, “with performances neither here or there for most markets.”

His assessment comes in the latest edition of Westpac’s “Housing Pulse” - a publication which combines Westpac’s own economic views and observations with data from housing analyst Cotality and the bank’s long-running consumer sentiment survey that it publishes with the Melbourne Institute.

“High frequency and forward-looking indicators show rate cuts and firming expectations of a further move lower, are providing some more impetus to housing markets,” he says.

“However, the reaction remains measured to date, consistent with our view that the nature of the easing and the high starting point for prices would see a fairly muted ‘affordability-constrained’ response.” 

Nevertheless, the bank expects home price growth to pick up substantially next year.

Nationally, Westpac is forecasting growth will more than double from a forecast 3% this year to 7% in 2026.

The most dramatic turnaround will be in Melbourne, where Westpac says it is expecting muted growth of just 2% this year, before it jumps dramatically to 8% in 2026, the highest forecast growth rate of any of the major capitals.

Sydney is expected to see subdued price growth of 3% this year, before the pace picks up to 6% in 2026. 

Sentiment

So what’s behind this expected national pick-up in property prices?

Some clues can be found in the Westpac-Melbourne Institute Consumer Confidence survey.

The ‘time to buy a dwelling’ indicator rose 2.5% over the three months to May.

At 90, the index is “well above recent lows but still in net pessimistic territory and well below the long-run average of 120.”

However, Westpac’s Consumer House Price Expectations indicator has surged 9.3% over the three months to May.

“Just under 64% of consumers expect prices to rise over the next year, up from 55% in February but below the 71% registered in June last year,” the bank says.

Pent-up demand

Westpac’s Head of Australian Macro-Forecasting, Matthew Hassan, points out there is also evidence of substantial ‘pent-up’ or ‘delayed activity’ when it comes to property purchases.

In other words, there are plenty of people who have made a conscious decision to buy a property over the next year, but are holding off until they feel conditions improve - namely, interest rates come down more.

Referring to data from Westpac’s Home Ownership Survey poll, which was conducted at the start of 2025, Mr Hassan says, “the results suggest there is a significant degree of delayed or ‘pent-up’ activity that could come through under the right conditions.”

The survey shows first-home buyer intentions are weak, “running 40% below average and subdued across all states.”

However, it’s a totally different story when it comes to existing owner-occupiers who intend to move to a better property.

“The proportion of respondents intending to purchase a new home, i.e. upgraders, was up nearly 30% on last year and 30% above the 2019-25 average,” Mr Hassan says. 

“Intentions are particularly widespread in NSW and Vic.”

Westpac says it’s a similar story for those planning to purchase investment properties.

“Nationally, the share is up 40% on last year to be 12.4% above the 2019-25 average.

“All states recorded strong increases, the share of intending buyers highest in Vic and NSW and well above average in Vic, Qld and SA,” Mr Hassan says. 

“Many were looking to time their purchases around an expected decline in interest rates.”

Interest rates

On the interest rate front, Westpac is predicting that the Reserve Bank of Australia will cut rates twice more by 0.25% each time by the end of the year - taking the cash rate from the current 3.85% to 3.35%.

However, the bank forecasts the central bank will then keep rates on hold at 3.35% for the foreseeable future - out to at least March 2027. 

This is markedly different from the current expectations of financial markets, which have priced in almost 1% of RBA cuts by mid-2026, which would take the cash rate to around 2.85%.

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The take-out

The implications from Westpac Bank are clear for investors planning to buy over the next year.

The first is that there are plenty of other property investors and owner-occupiers out there just waiting for what they perceive as the right conditions to jump into the housing market and push up prices further.

The second is that Westpac believes interest rates don’t have much further to fall in this cycle - probably only half-a-percent more.

Astute investors should weigh up this information from Australia’s second-largest bank carefully.

They should be asking whether it is worth the risk to keep sitting on the sidelines waiting for interest rates to ease slightly, and then jump into the market at the same time as thousands of other buyers, as home prices take off again.