The Reserve Bank has cut interest rates three times in 2025, bringing the cash rate down to 3.6%, a move that typically stimulates housing market activity and investor response.

Rising house prices are contributing to a wealth effect, encouraging increased consumer spending as Australians feel wealthier from property and equity gains.

Australia's Reserve Bank governor, Michele Bullock, has issued a warning about the risks posed by excessive investor activity in the housing market, especially during a period of housing affordability challenges.

She pointed out that private sector spending is increasingly driving economic growth, supported by rising real incomes, replacing government expenditure as the main engine of the economy.

In the June quarter, investors accounted for 38% of new housing loans, mostly small-scale landlords, raising concerns about their impact on housing prices and rental availability.

Cities like Brisbane, Perth, and Adelaide are experiencing house price increases above inflation and wages due to strong investor activity and tight rental markets, whereas Melbourne's growth remains subdued due to state taxes discouraging investment.

Unemployment stands at 4.2%, with a slight expected rise to 4.3% by the end of 2025, which could influence mortgage borrowing and financial stability.

The median house price in Australia now exceeds $1 million, requiring a household income of over $164,000 for a 20% deposit mortgage, making homeownership difficult for the average full-time earner, especially in outer suburbs.

Ms. Bullock emphasized that investor activity, mainly small landlords, has led to rising loan-to-valuation ratios and high debt-to-income levels, which could heighten systemic risks in the housing market.