If you are thinking about buying, selling, upgrading, or investing in property over the course of 2026, you are probably wondering what property prices will do this year.
In this blog, I revisit the evidence-based factors that matter most: loan volumes, borrowing capacity, interest rate expectations, interstate migration, and where each capital city sits in its cycle.
I also explain why we are currently seeing a two-speed market, where price growth is behaving very differently at the affordable end compared to the premium end.
This is designed to be useful whether you are an owner-occupier, a first home buyer, or an investor, and for anyone who simply wants a clearer, data-led view of what might shape the Australian property market in 2026.
Evidence-based factors that influence property prices
I have previously analysed the factors I believe matter most for short-term property prices. It is worth revisiting them, and weighing up current trends, to form a view on what may unfold over the 2026 calendar year.
Loan volumes: borrowing capacity & interest rates
Loan volumes matter because they are a direct read on buyer demand across both new and established property. Demand for borrowing can move quickly, while housing supply is relatively fixed and inelastic. Therefore, when borrowing demand accelerates faster than supply can respond, the result is usually upward pressure on prices.
Two levers do most of the work on lending demand.
First, serviceability rules and credit policy. This is shorthand for how tight lenders are, who they will lend to, and on what terms. For example, late last year, the regulator introduced a cap on high debt-to-income lending for Australian banks. That matters, because it constrains how much some borrowers can borrow, which feeds straight into how much they can pay.
However, it is important to understand the boundary of that regulation. APRA can regulate banks, but it does not regulate the non-bank sector – lenders such as Pepper, Liberty, Resimac, Firstmac, and others. Therefore, borrowers who do not meet bank credit criteria can sometimes still obtain finance through non-banks. In fact, we’re seeing a larger disparity in borrowing capacity between non-bank and bank lenders – sometimes several hundreds of thousands of dollars. Even so, serviceability settings remain a major driver of overall lending demand.
Second, the cost of borrowing: interest rates. When rates are high, or expected to rise, demand for new lending typically slows. When rates are low, or expected to fall, demand tends to lift.
This makes interest-rate expectations one of the key swing factors for lending demand in 2026. At present, the market is pricing in one to two rate hikes this calendar year. Whether they occur will depend largely on how inflation data evolves – December quarter data is released next week.
The complication is that interest rate expectations can literally change overnight! That is why forecasting lending demand over the next 12 months is difficult: the inputs can change materially in a short period of time.
Current trends
Unsurprisingly, the latest 12 months of data to September 2025 shows Queensland, Western Australia and South Australia leading the country for lending growth across both owner-occupiers and investors. Over this period, lending in these states rose by between 10% to 13% for both investors and owner-occupiers.
New South Wales is trailing, with lending up around 6% for owner-occupiers and about 3% for investors.
Victoria is the clear laggard: owner-occupier lending is up roughly 5%, while investment lending has contracted by around 2%.
Sentiment: interstate migration
Interstate migration is also a useful barometer of property sentiment. It is not so much the absolute level of migration that matters. That is, how many people move relative to the number of dwellings in a state, but the direction of the trend. The trend tells us how Australians are feeling about particular capital cities.
In the short term, property prices are heavily influenced by sentiment. Over the long run, fundamentals dominate, because sentiment tends to be (relatively) short-lived.
Current trends
For context, over the long term, interstate migration follows a reasonably consistent pattern: New South Wales loses roughly 5,000 people per quarter, Victoria loses around 1,000, Western Australia gains about 500 to 1,500 (data is noisy for smaller states), South Australia loses around 500 to 1,000, and Queensland gains roughly 6,000.
The latest data, covering the 12 months to June 2025, shows some meaningful shifts. Queensland has been gaining around 5,500 people per quarter and Western Australia around 2,500. New South Wales has been losing about 6,000 per quarter, which is worse than its long-term trend. South Australia has been losing roughly 300 per quarter, which is less negative than its long-term trend. Victoria has been losing only about 200 per quarter, which is effectively flat and materially better than its long-term trend.
On this basis, Western Australia and Queensland remain the standout states. Strong net inflows provide a buffer if overseas immigration slows. The Victorian data may also be an early signal that buyer sentiment is starting to turn more positive.
Relative value: Mean reversion
This time last year, I analysed property cycles over the past 45 years. In broad terms, a growth phase has lasted around 10 years, followed by a flat cycle that averages about 7 years, although both can run shorter or longer than these averages.
When forming a view on short-term price movements, it helps to consider where a particular market sits within this cycle. If a location is late in a growth phase, the odds increase that future growth over the next few years will be below average, simply because more of the cycle’s “easy gains” have already been realised.
Current trends
Brisbane’s current growth cycle began in late 2018, so it is now into its eighth year. That puts it closer to the end of the typical growth phase than the beginning. Having said that, the lead-up to the 2032 Olympics could keep sentiment stronger for longer, which may extend the cycle beyond the usual 10-year average.
Adelaide’s growth cycle also started around late 2018. However, I am more sceptical that Adelaide can keep running as long as Brisbane. Either way, the numbers have been strong: median house prices in both capital cities are up more than 80% since that cycle began.
Perth is at a different point in the cycle. Its growth phase only kicked off in mid-to-late 2022, which suggests it is still early. If history is a reasonable guide, there is a decent chance Perth has another 5+ years or more of above-average growth ahead of it.
Melbourne is the outlier. In real terms, the market has been flat for more than a decade, with price growth broadly tracking inflation. Historically, the longest flat cycle in Australia since 1980 has been about 12 years (Perth, from 2011–2022 inclusive). Statistically, that suggests Melbourne should be getting closer to the next growth phase.
Sydney is more nuanced. Over the past eight years, median house prices have grown at a below-average pace – around 5.2% p.a. – after a very strong burst between 2013 and 2016 (about 14% p.a.). Over the full 2013 to 2025 period, Sydney’s average growth rate is roughly 8% p.a., which is slightly above its long-term average. That combination implies Sydney’s growth rate may remain below its long-term average for at least the next few years.
A tale of two markets – discretionary vendor strike
Recent data suggests most markets are now running as a two-speed market: cheaper properties are seeing stronger demand and faster price growth than higher-priced stock. In practical terms, homes typically worth under $1 million are generally outperforming homes worth more than $1 million.
You can see this showing up in a few ways.
In Sydney, listings in the upper quartile are down 4.7% relative to the prior five-year average, and auction clearance rates are materially weaker in the $2 million-plus segment.
In Melbourne, conditions are softer at the top end as well, with days on market increasing for $1 million-plus property.
Cotality data also points to a similar split nationally: properties priced below the Home Guarantee Scheme caps are growing at roughly 1% per annum faster than properties above those caps.
There are a few likely reasons this pattern is emerging.
But first let’s look at interest rates over the past 16 years
A whole generation of newer borrowers is likely experiencing an interest-rate shock. The chart below shows the time-weighted average cash rate across three distinct periods: the decade before Covid, the first three years of Covid when the cash rate was cut to near zero, and the past three years in a higher-rate environment.
The key point is this: for the 13 years leading up to the start of 2023, borrowers lived with an average cash rate of only 2.13%. Today’s cash rate is almost double that. That shift in the rate backdrop sets the scene for the discussion below.
The ‘serviceability ceiling’
After three years in a higher-rate environment, many buyers and investors are running into a serviceability ceiling. Borrowing capacity has been squeezed from multiple angles: higher benchmark interest rates, tighter lender credit settings, and additional regulatory constraints such as the recent cap on high debt-to-income lending.
Investors have an added constraint: they cannot easily “accept” a lower rental yield in the way an owner-occupier might accept a higher repayment burden. Therefore, a portion of investors are gravitating towards locations, dwelling types and price points that deliver enough yield to support their borrowing capacity. The risk is that an excessive focus on rental yield can lead to poor asset selection. Over the long run, that typically shows up as weaker capital growth.
A generation anchored to 13 years of low interest rates
As discussed above, a whole generation of borrowers has effectively grown up in a low-rate world. The time-weighted cash rate over the 13 years to the end of calendar 2022 was only a little above 2%. That backdrop can create an anchoring bias: higher rates do not just feel expensive, they can feel “wrong”, as if they are an anomaly rather than a return to something closer to normal.
The problem is that cheap money becomes the baseline. That baseline then gets embedded into lifestyle and financial decisions such as buying a home, upgrading, and investing. When rates rise, behaviour can change quickly, but beliefs tend to lag. People need time to recalibrate what “normal” looks like.
During that lag, or “refusal phase”, many households avoid making big financial decisions altogether. Research suggests this reset in expectations typically takes around 18 months to 3 years.
If the neutral cash rate is somewhere around 3% to 3.5%, then current settings should be viewed as broadly normal rather than “high”. That is the adjustment many borrowers in their 30s, and possibly 40s, still need to make. Once expectations catch up, it is plausible the top end of the property market stabilises and begins to recover.
Government and family stimulus
It is well known that the expanded Home Guarantee Scheme has boosted demand from first home buyers, particularly in the sub-$1 million segment (and up to $1.5 million in Sydney).
Beyond government policy, another driver is family assistance. The “bank of mum and dad” and broader intergenerational wealth transfers are increasingly helping younger property buyers.
What does that all mean for 2026?
Patient investors in investment-grade Melbourne apartments, an asset class that has delivered very little growth over the past 10 to 13 years, are likely to be rewarded in 2026 and beyond thanks to the two-speed market.
I expect premium suburbs/markets in Melbourne and to a less extent, Sydney to continue underperforming unless we get a genuine positive surprise on interest rates (cuts).
Adelaide looks closer to the end of its growth cycle, so I would be cautious about making substantial new commitments there. That said, I acknowledge cycles can last longer than we expect, particularly when sentiment remains supportive.
Brisbane and Perth should remain standout markets through 2026, driven by overwhelmingly positive sentiment.
Looking further ahead to 2027, we may see the anchoring to past low-rate settings fade. And if there is a change of government in Vitoria at the end of 2026, it could enjoy a meaningful turnaround.
