By Graeme Salt
This year, property prices have grown by around 8.5 per cent. Growth is still predicted in 2026 – though at the more moderate rate of five to seven per cent.
In last year’s annual review, I predicted that 2025 would be a year in two halves – with prices growing strongly in the latter half of the year, fuelled by rate cuts.
Broadly speaking that has played out – although with rate cuts looking less likely than originally predicted, elements of the property market appear to be calming. This trend looks set to continue next year.
Here are the drivers that will have an impact on the property market in 2026.
Interest rates
The Reserve Bank of Australia (RBA) has a mandate is to keep inflation at two to three per cent.
Recently, monthly inflation figures showed inflation running at a very hot 3.8 per cent. Consequently, some economists predict this to be the end of the rate cutting cycle.
And, as the RBA Governor pointed out, the monthly 3.8 per cent figure is now included in the annual figures until October 2026 – meaning that, even if there is evidence of inflation abating, the annual figure will remain elevated for some time.
The net result is that, if there are to be any rate cuts, they won’t be until the back half of 2026.
From May 2013 to November 2022 inflation was so low that interest rates were kept deliberately down to stimulate the economy. And it’s difficult to see things getting that low again for a long time – which will put a cap on how much people can borrow.
Unemployment
One of the other roles of the RBA is to focus on achieving sustained full employment, which is the current maximum level of employment that is consistent with low and stable inflation. Typically, as the RBA is obliged to raise rates to keep a lid on inflation, unemployment tends to rise.
And since the RBA started increasing interest rates, unemployment has been inching up to 4.3 per cent.
The more people are out of work, the less there are people capable of buying a home. And, if rates are now staying at higher levels, this will continue.
So, while interest rates are likely to suppress price growth, there are still some factors that will stimulate the property market.
Population growth
Australia’s population continues to grow. Now at 27 million, its is predicted to be 31 million in 2034.
Some of this is driven by high birth rates, but immigration is also a key factor. And, while not as high as previous years, Australia is likely to receive many people choosing to live here.
Fundamentally this will drive demand for housing.
Supply v demand
AMP’s Shane Oliver argues Australia has a shortfall of housing between 220-300,000.
The shortages engulfing the housing market are also evident elsewhere with rental vacancy rate at a record low of just 1.5 per cent over the past four months, down from 1.9 per cent a year ago.
Undoubtedly, federal and state government initiatives to boost housing supply will have an impact in the long run – but not in 2026!
Government Impact
I talk to banks on a daily basis. One consistent thing they tell me is that Housing Australia has a backlog of applications for the First Home Guarantee Scheme (FHGS). This is a scheme designed to help first home buyers get a foot on the property ladder.
One bank recently told me it is taking 14 business days for FHGS applications to get government approval.
My read of this is that there is still a huge demand from would-be first home buyers and I have had many clients pipped at the post since October when the scheme was expanded.
Based on this, prices on entry-level properties are likely to keep rising regardless of interest rates.
Of late, first home buyers have been competing against investors who typically buy more affordable properties. Investor demand may be calmer in 2026 as rates are likely to remain somewhat elevated, plus it appears that the banking regulator (APRA) is looking to tighten up on the loans offered to investors.
The net result is that the first home buyer market will continue to rise, but by how much?
So, what does 2026 have in store for you?
If you
- are a current mortgage holder, interest rate relief is not around the corner (sorry)
- are an owner, your assets will probably continue to increase in value
- want to buy, prices will probably be more at the end of 2026 than at the start
For me 2026 is more of the same. Lately I have gone through quite a spree of buying investment properties and I want to bed these down.
I will be spending Christmas and New Year in Australia, taking it easy. So, if anybody wants to talk through any of the above, I am free to catch up. You may want to ask yourself should you:
- Fix your loan?
- Refinance?
- Buy another property?
I am always happy to have an informal chat.
Wishing you a merry Christmas and a happy New Year.
Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your home loan needs, please contact him on 02 9922 5055
