Where home prices could take off or crash land in 2026

HISTORY shows it is a brave ploy to bet against the Australian property market.

Yet a dramatic reversal in interest rate expectations means 2026 is looking a little softer for real estate.

Opposing forces should see prices continue to break records this year but experts are tipping gentler growth than the 8.6 per cent reported by Cotality in 2025.

Research director at the data house, Tim Lawless, reckons 5 per cent or lower nationally is now a reasonable estimate as high value-to-income ratios and higher-for-longer mortgage rates constrain demand.

But varying housing dynamics will result in a “tapestry of performance” across the board.

“I think we’ll still see the lower quartile of the market outperforming, given high household debt levels, serviceability barriers and credit constraints will continue to funnel mainstream demand towards those lower price points,” Lawless said.

The federal government’s expected first home buyer deposit guarantee has further accelerated growth in lower-value properties, which sit under the scheme’s eligibility cap.

Buyer’s agent at Allen Wargent Property Buyers, Pete Wargent, says the tight rental outlook is also encouraging first homebuyers to jump into the ownership market as soon as practicable.

Mid-tier centres Adelaide, Perth and Brisbane have outperformed the traditional hot spots of Sydney and Melbourne in recent years.

Lawless says the landscape differs from city to city but Adelaide could be most at risk of a correction, given dwelling value to income ratios are close to overtaking Sydney.

“Adelaide probably is higher risk than… Brisbane or Perth of going through a correction simply because it doesn’t have the same fundamentals as those two cities.

“It doesn’t have as diverse an economy, it’s got negative interstate migration now, whereas WA and Queensland still have very strong rates of interstate migration supporting demand.”

Wargent also calculates that some pockets of the country are vulnerable to a correction.

Pushed out of inner-city areas by affordability constraints, buyers are flocking to cheaper and more illiquid regional markets, he said.

“It’s even happened in Darwin, to some extent, with buyer’s agencies pushing hundreds of clients into what was the cheapest capital city market, and prices have surged.

“This may see investors experiencing short-term price gains but it’s a risky strategy if you aren’t one of the early buyers in the cycle.

“When the tide goes out some investors will get burned.”

Finding value is increasingly challenging but Mr Lawless likes the look of Melbourne as a “roughie”.

“You’d have to think Melbourne has got some room to move upwards,” he said.

With a dwelling value to income ratio of 7.1, Melbourne is the third most affordable capital city, after Canberra and Darwin.

And with a median dwelling value of $827,000, it’s cheaper than Adelaide, Perth, Brisbane, Sydney and Canberra.

But while it has a lot going for it from an affordability standpoint, Melbourne still isn’t attracting a large amount of interstate migration, given Victoria’s weak economy, Lawless says.

For AMP chief economist Shane Oliver, several factors will keep the upward pressure on prices.

He cites the hangover of three 2025 interest rate cuts, demand-boosting government schemes, improved consumer confidence and the ongoing housing shortage.

But he says the potential for rate increases in 2026 as well as banking regulator APRA’s efforts to tighten controls on riskier forms of lending, should take some of the heat out of the market.

So too might slower population growth, with tigures released on Friday last week pointing to an expectation net overseas migration will moderate in 2025-26 before declining further.

The Centre for Population data indicates population growth of 1.3 per cent falling to 1.2 per cent from 2027, lower than the average of 1.4 per cent experienced in the 2010s. – WITH AAP