Australia: Another Year of Rising Prices, Slower Momentum
Australia’s housing market is heading into 2026 with prices at record highs, growth still positive but slowing, and affordability stretched to levels that leave the Reserve Bank of Australia watching the sector more closely than it admits.
Most major forecasters now expect national dwelling prices to rise by around 4–8% in 2026, down from roughly 8–9% gains in 2025, with growth heavily fragmented by city and segment.
Underlying this resilience are a still‑tight supply, structurally strong rental demand and policy supports for first‑home buyers, offset by higher mortgage rates, worsening affordability and a gradual rise in unemployment.
National Picture: Growth Continues, Pace Moderates
The consensus is for another year of positive, but slower, capital gains.
PropTrack data show national home prices rose 8.8% in 2025, taking the total value of the housing market past A$12 trillion.
Major banks and data providers now expect that pace to slow to about 5% in 2026, with forecasts clustering between 4% and 8%.
CoreLogic/Cotality’s index indicates that values were still rising at the start of the year — up 0.8% in January 2026 after 0.6% in December, lifting the median national dwelling value to about A$912,465.
Key structural drivers remain in place:
Domain’s FY26 outlook argues that home prices will continue rising through the 2025–26 financial year, supported by lower borrowing costs than at the 2023 peak, government assistance for first‑home buyers and rising household incomes.
A persistent national housing shortfall, with demand outstripping new supply, continues to put upward pressure on prices even as net overseas migration begins to slow and construction costs stabilise.
Crucially, analysts across ABC, Domain and KPMG stress that they do not expect a nationwide price fall in 2026 under base-case assumptions but rather a deceleration in annual growth as interest rates and affordability constraints bite.
City‑Level Outlook: Perth and Brisbane Lead, Sydney and Melbourne Grind Higher
Beneath the national averages, the 2026 outlook is highly fragmented.
KPMG’s January 2026 Residential Property Outlook provides one of the clearest city‑by‑city roadmaps:
Perth:
Forecast house‑price growth of “almost 13%” in 2026, the strongest among capitals and “far exceeding previous expectations", driven by population inflows, tight stock and relatively low starting price levels.
Brisbane and Darwin:
Expected to post “more than 10%” house‑price growth in 2026, reflecting strong interstate migration, constrained supply and robust rental markets.
Adelaide:
Projected house‑price gain of more than 8%, with underlying demand still solid but affordability starting to pinch.
Sydney and Melbourne:
KPMG expects more moderate growth; for Melbourne specifically, house prices are seen rising 6.8% and units 7.3% in 2026, supported by genuine underlying demand rather than speculative buying.
Domain anticipates Sydney and Melbourne will lead price growth in FY26 in dollar terms, given their higher base prices and sensitivity to rate changes, and forecast record‑high prices in Sydney, Brisbane and Adelaide by the end of FY26.
Other forecasters line up behind this rough hierarchy:
Domain’s late‑2025 projections suggest Sydney house prices will rise about 7% in 2026, pushing the median to a new record above A$1.9 million.
A KPMG‑referenced report cited by First Home Buyer notes a nationwide 7.7% house‑price increase in 2026, with Sydney’s house prices up 5.8% and units 7.8%, followed by a further 9% rise in 2027 under their baseline.
The consistent message: resource‑linked and smaller capitals (Perth, Brisbane, Darwin, and Adelaide) are likely to outgrow Sydney and Melbourne in percentage terms, but the big two still set the tone for headline valuations and mortgage exposure.
Rates, Affordability and Rents: The Tension Points
The main risk to this bullish baseline is monetary policy and affordability.
An ABC analysis at the start of 2026 notes that property values continued to climb nationwide but warns that rising rates should bring a slowdown in annual growth after an 8.6% rise in 2025.
Cotality’s index suggests the strongest gains are now concentrated at the lower end of the market, where cheaper properties attract both first‑home buyers and yield‑hungry investors, exposing that segment to any further rate hikes.
Rate sensitivity is front and centre:
Realestate.com.au quotes analysts saying that even with a near‑term RBA rate rise, prices are likely to keep rising through 2026, although current forecasts of 6–8% national growth could be revised lower if the bank is forced to tighten again.
A January 2026 conversation piece, drawing on interviews with five former RBA economists, argues that housing does in fact influence RBA decisions: internal documents show the bank uses household mortgage payments as a tool to manage inflation and temper economic activity, contrary to public denials that it targets house prices.
On the rental side, conditions remain tight:
KPMG expects rents to increase by around 3.5% across 2026 and 2027, above the long‑run average of 3%, reflecting ongoing supply constraints and population growth.
The combination — high prices, above‑trend rent inflation and rising unemployment — implies that affordability will deteriorate further, especially for lower‑income and highly leveraged households. That’s the key macro-stability watchpoint.
Policy and Demand: First‑Home‑Buyer Schemes and Buyer Behaviour
Policy is doing some of the heavy lifting in keeping demand resilient.
Domain highlights first‑home‑buyer programmes (e.g., low‑deposit schemes supported by federal guarantees) and the planned “Help to Buy” shared‑equity scheme, under which the government can shoulder up to 30–40% of a property’s value, as factors that will add tens of thousands of buyers to the pool in 2026.
First‑home‑buyer and investor‑focused sites are already framing 2026 as a year in which record national and capital‑city prices are forecast, despite rate uncertainty, reinforcing expectations that real estate remains a reliable store of wealth.
Behaviourally, this backdrop creates:
Strong incentives for investors and upgraders to remain active, given historically demonstrated capital gains (one property‑market consultancy notes that a standard Australian house has “tripled in value in each 20‑year block since WWII", though that’s a backward‑looking statistic).
Growing tension between the RBA’s desire to restrain demand and political pressure to support affordability and home ownership — a tension that could shape both future rate decisions and macroprudential measures.
From an investor’s perspective, policy is likely to remain net supportive of demand, even as regulators talk tough on risks.
What to Watch in 2026
Three signposts will determine whether 2026 delivers another strong year for Australian property or proves to be the cycle’s peak:
RBA rate path and inflation: Any additional hikes beyond what markets have priced, or a slower than expected fall in inflation, would erode borrowing capacity and could pull forecast price growth back from the 6–8% range toward the lower single digits.
Affordability and arrears: Continued price growth from already high levels, combined with rising unemployment, would stress lower‑income and highly leveraged borrowers; a clear rise in arrears would be an early signal that the market’s resilience is fading.
Supply response and policy tweaks: A meaningful ramp‑up in new dwelling completions or changes to tax and planning settings could gradually ease the structural undersupply that underpins many of the more bullish forecasts.
On current evidence, 2026 is shaping up as another year of price gains rather than a correction, but with a thinner margin for error. For capital allocators, the key task is less about calling a crash and more about distinguishing between markets being pulled higher by genuine undersupply and income growth and those where prices are drifting away from fundamentals under the weight of cheap credit and policy support.