Decoding 2026

Australian housing market outlook and policy impacts for 2026

Confidence high but uneven

Industry sentiment entering 2026 remains strongly positive, with very little downside risk priced into expectations. Nationally, 87 percent of survey respondents expect dwelling values to rise over the year ahead, while only 3.5 percent anticipate prices will fall. Almost half, 44 percent, expect price growth of more than 5 percent.

The strength of that outlook reflects the broad-based performance of the housing market through 2025. Every capital city and rest-of-state region recorded value growth over the calendar year, and every state and territory except the ACT saw dwelling values rise by at least 5 percent.

Cotality Australia Research Director Tim Lawless said the survey results reflect momentum evident in the data, while also highlighting how uneven the trends have become across markets.

Cotality’s Home Value Index recorded an 8.6 percent increase in national dwelling values through 2025, adding approximately $71,400 to the median home value.

Momentum, however, eased toward the end of the year, with December recording the smallest monthly gain in five months. Sydney and Melbourne detracted from the headline result, while most other capitals and regional markets continued to record growth at a slower pace.

“Renewed speculation that the rate cutting cycle may be over, and that the next move from the RBA could be a hike, has dented housing confidence,” Mr Lawless said. “A higher-for-longer interest rate setting, combined with renewed cost-of-living pressures and worsening affordability, appears to have taken some heat out of the market heading into 2026.”

Queensland, Western Australia and South Australia lead expectations

Survey respondents identified Queensland, Western Australia and South Australia as the most bullish markets entering 2026, mirroring their performance over recent years.

In Queensland, 89 percent of respondents expect prices to rise, with half anticipating house price growth of more than 5 percent. In Western Australia 9 out of 10 agents expect price increases and just less than half are forecasting those gains to be above 5 percent.

South Australia is not far behind, with 48 percent of respondents expecting prices to rise by at least 5 percent.

These three states were also among the strongest performers in 2025, alongside the Northern Territory, with dwelling values rising by 13.6 percent in Queensland, 15.9 percent in Western Australia and 9.1 percent in South Australia.

Expanded respondent commentary from Queensland supports that assessment. Markets across Greater Brisbane and regional centres such as Cairns continue to see sustained enquiry from first home buyers, upgraders and interstate investors.

Demand is clustering around First Home Guarantee thresholds, particularly in regional markets where the cap ranges from $500,00 to $800,000. Extremely tight rental conditions are only adding urgency to buyer decision-making and reinforcing upward pressure on prices.

Broad-based demand underpins Western Australia

Western Australia stands out not only for the strength of expectations, but for the breadth of demand across price segments. Respondents in the south-west describe conditions as the strongest seen in decades, with activity spanning entry-level housing through to properties priced around $1.5 million.

“In Western Australia, demand has been more evenly distributed across price points,” Mr Lawless said.

“That breadth of demand has helped support more sustained growth rather than concentrated at the lower end of the market.”

Conditional optimism in New South Wales

Despite being Australia’s most expensive housing market, sentiment in New South Wales remains positive. Eighty-six percent of respondents expect prices to rise in 2026, with 46 percent anticipating growth above 5 percent.

Confidence, however, is increasingly conditional. “In New South Wales, high dwelling values and stretched serviceability mean growth expectations are more sensitive to interest rate settings,” Mr Lawless said.

“Momentum is still there, but it is more dependent on borrowing conditions than in markets where affordability is less stretched.”

Structural headwinds continue to weigh on Victoria

Victoria remains the most constrained market in the survey. Although 84 percent of respondents expect prices to rise in 2026, sentiment is weaker and more fragmented than elsewhere. Almost a third expect growth below the national average, while 2.6 percent anticipate price falls.

At the end of 2025, Victorian dwelling values remained below their March 2022 peak as higher property taxes, reduced investor participation and a recent history of weaker interstate migration shaped market outcomes.

“Victoria stands out for the scale of investor selling,” Mr Lawless said.

“The cumulative impact of policy changes and higher holding costs has weighed on investor activity, even as first home buyers now account for the largest share of lending across the states.”

Conservative expectations in Tasmania

The outlook for Tasmania remains one of positivity with a caveat of cautiousness. While all respondents expect prices to rise in 2026, more than three-quarters anticipate growth of less than 5 percent.

“Tasmania has been one of the softer housing markets following a period of very strong growth between 2017 and 2021,” Mr Lawless said.

“Values are still sitting slightly below previous peaks, which helps explain why expectations for growth remain measured.”

Price growth expectations meet affordability constraints

Interest rate uncertainty hasn’t derailed price expectations

Survey responses show that 46 percent of participants expect at least one interest rate cut in 2026, while 23 percent expect rates to rise. Importantly, sentiment shifted noticeably during the survey period.

For respondents who completed the survey before the Reserve Bank’s December board meeting, 51 percent expected a rate cut in 2026. That figure fell to 38 percent among those responding after the meeting, reflecting the renewed cautionary outlook from the RBA on inflation and rates in 2026.

Mr Lawless said the shift highlights the increasing uncertainty around borrowing conditions, even as price confidence remains resilient.

“There’s a growing belief that interest rates found their low point in 2025 and that the next move could be up rather than down,” he said. “Cost-of-living pressures are picking up again, and that is likely to weigh on confidence, but at this stage it hasn’t materially dampened expectations for housing prices.”

Affordability constraints intensifying

One reason price confidence has held up is the ongoing imbalance between housing supply and demand. Across most markets, new dwelling supply continues to lag population growth, limiting downside risk even as borrowing capacity tightens.

“That supply–demand imbalance is still doing a lot of the heavy lifting for housing values,” Mr Lawless said.

“Even with affordability stretched and less certainty around rates, there remains a floor under prices in many markets.”

If prices rise by more than 5 percent in 2026, as many respondents expect, affordability challenges are set to worsen. By the end of the September quarter last year, Cotality’s housing affordability metrics were at, or near, record highs.

The national dwelling value-to-income ratio reached 8.2 and it was taking a median household around 11 years to save a 20 percent deposit, while renters were dedicating more than a third of their pre-tax income to rent.

Mortgage serviceability had improved modestly following earlier rate cuts, but a median-income household with a new loan was still allocating around 45 percent of pre-tax income to repayments.

“With affordability and serviceability already stretched, it wouldn’t take much further price growth for these measures to reach new record highs,” Mr Lawless said.

First Home Guarantee and demand dynamics

Participation lifts as pressures persist

First home buyers (FHB) remain a relatively modest share of overall housing demand, despite targeted policy support. Based on ABS lending indicators to the September quarter last year, FHB accounted for 22 percent of mortgage demand by volume and 18 percent by value, both below the decade average.

Affordability constraints and higher levels of investor participation have continued to limit first home buyer presence across much of the market.

Mr Lawless said recent policy changes are beginning to shift that dynamic. “Incentives such as the expanded 5 percent deposit guarantee and the Help to Buy scheme are likely to lift first home buyer activity,” he said.

“That uplift is already intensifying competition at the middle to lower end of the pricing spectrum.”

Survey results support that view, with 76 percent of real estate respondents reporting an increase in market activity following the expansion of the First Home Guarantee and 40 percent observing a significant rise in first home buyer participation.

The impact has been most pronounced in markets where median prices are close to scheme thresholds, particularly across Queensland and parts of Western Australia. Federal Treasury data shows the take-up rate has been rapid as more than 21,000 FHB utilised the expanded 5 percent deposit scheme since it was introduced on October 1 2025. Prior to the expansion, the scheme was capped at 35,000 places nationally.

Affordability may limit the durability of the uplift

Despite the initial boost, the longevity of increased first home buyer activity remains uncertain. At the end of 2025, less than half of Australian suburbs, 44 percent, recorded median house values below the First Home Guarantee price caps. That compares with 57 percent of suburbs a year earlier.

“With affordability and serviceability constraints mounting, the pool of eligible suburbs is shrinking,” Mr Lawless said.

“As prices rise further, a growing share of prospective first home buyers are likely to find themselves priced out of qualifying markets.”

New Zealand price expectations lift as the market finds firmer footing

New Zealand’s residential property market has kicked off 2026 with improving sentiment, though expectations remain tempered by borrowing constraints and an uneven regional recovery.

After an extended period of soft values and cautious buyer behaviour, survey responses suggest confidence in price direction is strengthening, even as expectations around the pace of growth remain restrained.

The Decoding 2026 survey shows almost three-quarters of New Zealand respondents expect house prices to rise over the year ahead, including 14 percent who anticipate growth above 5 percent. Optimism has lifted from recent lows, but confidence remains measured relative to Australian counterparts.

Cotality New Zealand Head of Research Nick Goodall said the responses reflect the cautiousness around the country’s economic and market recovery, which is progressing unevenly across regions and price points.

Interest rates and policies impact outlook

Interest rate expectations also continue to shape sentiment. The survey period straddled the Reserve Bank of New Zealand’s Late-November OCR decision (to cut the rate by 25 basis points to 2.25%), and responses shifted accordingly.

Before the announcement, 54 percent of respondents expected at least one rate cut in 2026. After the decision, that share fell to 43 percent, with a larger proportion now expecting rates to remain on hold.

“The expectation of short-term rate relief has moderated, but previous mortgage rate falls are still flowing through to homeowners’ payments as fixed terms roll off,” he said.

“Lower rates continue to support first home buyer activity and are slowly encouraging mortgaged investors back into the market, even if confidence remains cautious.”

Planning reform has added another layer of guarded optimism as nearly half of respondents believe recent changes to planning laws and the Resource Management Act will benefit their region over the next two to three years, though most acknowledge it is too early to assess the impact on actual development activity.

“Policy reform has the potential to improve total housing supply with greater build intensification, but the effects are likely to be gradual rather than immediate,” Mr Goodall said.