Australian property prices are expected to continue their upward trajectory, with units outpacing houses for the first time, according to KPMG's Residential Property Market Outlook.

The national housing market is forecast to see house prices rise by 3.3% in 2025, followed by a more substantial 6% increase in 2026, while unit prices are predicted to grow by 4.6% and 5.5%, respectively.

Perth leads the house price growth forecast for 2025 at 4%, while Sydney is expected to dominate in 2026 with a 7.8% increase. The shift towards units reflects growing affordability constraints in capital cities.

KPMG Chief Economist Dr Brendan Rynne, said the market has shown remarkable resilience despite challenging conditions. "While 2024 was a year of high interest rates and inflation and subdued consumer sentiment, the housing market withstood all those factors and still provided strong price growth, due to demand outstripping supply," Dr Rynne said.

The report indicates that building approvals are improving, though the translation into actual housing completions will be limited in 2025 and 2026 due to inherent time lags in the construction process.

For renters, some relief may be on the horizon. Rental growth is expected to moderate to between 3.5% and 4.5% over the next two years, down from the peak of 7.8% observed in March 2024.

The market's performance has aligned closely with previous forecasts, with 2024 seeing house prices rise by 5.1% and units by 4.5%, nearly matching KPMG's earlier predictions of 5.3% and 4.5% respectively.

"Despite affordability and availability issues and a delayed interest rate cut, increased investor sentiment, and anticipated relaxed lending conditions will help support modest price growth in 2025, and then stronger growth next year," Dr Rynne said. He said that the anticipated interest rate cuts starting in the second quarter of 2025 would likely accelerate price growth in the latter half of the year.

"A downward shift in rental prices will help restrain property growth. The high rents in recent years have pushed more renters to look to buy instead which has added to demand and hence prices," Dr Rynne said. "This is one of the factors we see contributing to a more balanced and sustainable rate of price growth over the next one to two years, and more aligned with long-term averages."