A Shift in the Housing Landscape: What to Expect for Property Prices in 2026
As we look ahead to 2026, it seems that Australia’s property market, which experienced a resurgence in 2025, is now gearing up for a period of moderation. The anticipated slowdown in price growth, combined with the potential for interest rate increases and rising borrowing expenses, poses challenges that could lead to negative trends in certain sectors of the housing market.
However, there are positive signals, particularly for first-time buyers supported by government initiatives, a resurgence of investors, and ongoing demand for budget-friendly housing options. These factors are likely to sustain the lower end of the market, even as the more expensive segments may take a step back.
This anticipated shift follows a robust year where many regions in Australia enjoyed significant house price increases, particularly cities like Perth, Adelaide, and Brisbane. These markets saw remarkable growth driven by factors such as fear of missing out (FOMO), limited housing inventory, and decreased interest rates.
Economists have mixed predictions for 2026. Recent research from Domain suggests that median house prices could rise by 6 percent, reaching approximately $1,339,267, while unit prices might increase by 5 percent, hitting around $759,112. Yet, they caution that affordability issues are likely to become more pronounced, complicating the outlook.
Dr. Nicola Powell, the Chief of Research and Economics at Domain, notes, "While we might see an initial uplift in the market as we enter the new year, just one piece of data can drastically alter our perspective. Given the current trajectory, it looks like we may have to brace for potential interest rate hikes in 2026. This could dampen momentum and influence decision-making among buyers. Therefore, although we stand by our forecast for property price growth, I suspect we’ll experience a year characterized by contrasting halves."
Major banks share a similar view on the market’s direction. For instance, ANZ forecasts a 5.8 percent increase in property prices across capital cities, while the Commonwealth Bank of Australia (CBA) anticipates a 4 percent rise, and NAB sees growth at 6 percent. Westpac has recently adjusted its prediction down from 9 percent to 6 percent.
Powell adds that Sydney is likely to witness stronger growth rates compared to other cities, though places like Adelaide, Brisbane, and Perth may experience a slower pace of increase than in the past. "The shared equity scheme and the expanded Australian government deposit program, which allows for a 5 percent deposit, are expected to stimulate activity within the market," she explains.
Despite these optimistic elements, Powell identifies interest rate hikes as a significant headwind for 2026. Eliza Owen, who leads Australian research at Cotality, highlights emerging signs of market fatigue as inflation rises and expectations for rate cuts diminish. Cotality’s December Home Value Index revealed a slight decline of 0.3 percent in house values in Sydney and 0.1 percent in Melbourne, marking the first decrease in these cities since January of the previous year.
Owen remarked, "If 2025 was revitalized by rate cuts, it's clear that the absence of further reductions in 2026 will lead to a more subdued market environment. Major banks are already revising their forecasts, and some of the largest institutions are predicting price increases."
During December, final auction clearance rates hovered around the high 50s, significantly lower than the 70 percent seen in early spring. Additionally, several upscale suburbs in Sydney started to report minor price declines. "In Sydney, we’re witnessing a flattening of the housing market," Owen stated. "By the close of 2024, conditions appeared weak, yet the situation improved thanks to cash rate reductions. Currently, however, housing is approximately 8 percent more costly.
"I believe that factors such as affordability limitations, interest rates, and consumer sentiment will exert downward pressure on the property market, particularly affecting higher-end properties in Sydney priced above $2.5 million.
"On a brighter note for 2026, the more affordable housing markets stand to benefit. These sectors are likely to thrive due to the 5 percent deposit scheme, especially in areas of Sydney and Melbourne located more than 20 kilometers from the central business district.
Additionally, Owen points out that affordable regional markets, notably in Far North Queensland and Western Australia, are poised for growth, driven by both investors and first-home buyers looking for rental opportunities. She also notes that recent lending statistics from New South Wales indicate that around 10 percent of new investor loans in the September quarter were taken out by first-time homebuyers, a trend she expects to persist.
Dr. Shane Oliver, chief economist at AMP, concurs with this general outlook. He cautions that without strong migration levels supporting the market, especially during the 2023 rate hikes, property prices may cool. "If interest rates remain stable, we could indeed see around 6 percent growth in property prices," Oliver commented. "However, should they rise, I wouldn't be surprised to see a downturn."
Since the Reserve Bank of Australia began increasing rates in May 2022, property prices initially fell for six months but rebounded sharply when migration surged, leading to record highs. Oliver doubts that a similar rebound will happen this time, given the lack of substantial immigration driving the market.
He does agree that the first home buyer deposit scheme continues to provide support in the lower to mid-market segments. Oliver warns that if the RBA opts to raise rates again, additional increases may follow, stating, "Interest rates are like cockroaches; if you see one, expect more to come."
As we navigate the complexities of the property market in 2026, one must ask: Will the expected government initiatives be enough to counterbalance the pressures from rising rates? How do you see the landscape shifting this year? Share your thoughts below!
