Housing Surpasses $12 Trillion
Australia’s housing market continues its strong upward trajectory, with the total value of residential properties reaching $12 trillion.
The early signs of inflation noted in last month’s letter became more pronounced in the latest quarterly CPI reading, leading markets to price in just one interest rate cut for 2026.
Robust performance in global equity markets supported gains in diversified portfolios and reinforced the importance of maintaining broad geographic exposure.
Please click here to read our October 2025 markets report as a PDF.
Housing Market Hits $12 Trillion
The Australian housing market hit a record $12 trillion, with prices doubling over the past decade.
Home values rose 1.1% in October, lifting the annual growth rate to 6.1%. The loosening of monetary policy since February and the expansion of the deposit guarantee scheme have both intensified competition for housing.
A notable trend is the widening gap between house and unit prices. Five years ago, detached houses were about 20% more expensive than units. That has now expanded to 50%, as buyers increasingly prioritise land.
Price growth has been strongest in the middle and lower segments of the market: mid-tier dwelling values rose 1.4%, lower-quartile values climbed 1.2%, while top-tier prices gained just 0.7% over the month.
Supply constraints remain a key challenge. Home sales are 3.1% above the five-year average, yet advertised stock is 18% below typical levels.
Australian Economy
Markets scaled back expectations of further rate cuts in October after quarterly inflation rose for the first time since 2022. Annual headline inflation climbed to 3.2% in September, up from 2.1% in the June quarter. Underlying inflation, which strips out volatile components, increased to 3.0%, compared with 2.7% in June.
Much of the rise was driven by goods inflation, particularly a 23.6% surge in electricity prices following the expiry of state government rebates that had previously lowered costs.
Housing, fuel, and food cost pressures also added upward pressure to CPI. Given the RBA’s focus on quarterly data, markets interpreted this as a sign that inflation may remain persistently above the central bank’s 2–3% target range, dampening prospects for further rate cuts.
Traders now expect only one additional 25 basis point rate cut in 2026. Meanwhile, the unemployment rate rose to 4.5% in September, its highest level since 2021, before being revised down to 4.4%. Still, unemployment remains below historical levels and forward indicators, such as voluntary job quits, suggest tightness among the labour force.
Equities
October was a good reminder of why we advocate for diversification when investing, with domestic equity returns lagging the gains made in international markets.
The Australian market inched 0.4% higher. Miners performed well on the back of the US-Australia Critical Mineral Framework, however the prospect of fewer interest rate cuts hit more cyclical sectors.
The S&P 500 added 2.3% and reached another all-time high, buoyed by robust earnings and continued affection towards the artificial intelligence thematic. Indices in Germany, France, Brazil and India all recorded positive gains. Conversely, investors retreated from China after solid gains earlier in the year.
Japanese equities gained 16.6% after electing Sanae Takaichi as its fourth prime minister in five years. Her policies focus on stimulating economic activity through lower taxes and fiscal support for growth industries and combat inflation.
Fixed-Income
Bond markets in October reflected ongoing U.S. economic and geopolitical uncertainty. Yields fell early in the month when the U.S. threatened to impose an additional 100% tariff on Chinese exports after Beijing introduced restrictions on rare earth materials vital to defense and electronics.
Sentiment improved after the two nations’ leaders met in South Korea. Although no formal agreement emerged, the meeting signaled that both sides are intent on avoiding a full-scale trade war.
The U.S. Federal Reserve cut interest rates by 25 basis points, but Chair Jerome Powell noted “strongly differing” views within the board. These divisions were heightened by the recent government shutdown and delays in key economic data.
As a result, markets scaled back expectations of a December rate cut, supporting a rally in the U.S. dollar. In Australia, 10-year government bond yields ended the month largely unchanged.
Currencies
A flight to safety among traders meant the US Dollar strengthened in October, despite the uncertainty largely related to US-induced pressures, including the government shutdown and rising tensions with China.
The Australian Dollar subsequently fell 1.0% against the greenback, but gained against the Euro, Pound and Japanese Yen as interest rate expectations cooled. Higher interest rates make a currency relatively more attractive to investors as they can earn higher interest on deposits.
Commodities
The RBA index of commodity prices increased for a third straight month and is now up 8.6% over the past 12 months. Gains to copper, refined oil products, and iron ore underscored the increase.
However, oil prices eased as supply increased. The International Energy Agency expects a surplus of 3 million barrels per day in 2025–26 as OPEC continues to unwind production cuts.
Gold hit a new all-time high of US$4381 mid-month, before retreating as investors took profits and geopolitical tensions appeared to ease.
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