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Affordability Tightens, But Growth Still Expected

Australian home prices are poised to rise again in 2026 — but the pace will be slower, and the pressure on buyers is mounting. A mix of ongoing supply shortages, strong migration, and generous government incentives are clashing with rising interest rates and household financial stress.

Here’s what’s driving the market right now — and what Rodney McLoughlin believes buyers and sellers should watch closely in 2026.

🔮 2026 Growth Forecasts: A Mixed Outlook

KPMG’s latest Residential Property Outlook predicts house prices will rise:

• Sydney: +5.8% for houses, +5.3% for units
• Melbourne: +6.8% for houses, +7.3% for units
• Brisbane: +10.9%
• Perth: +12.8%

Smaller capitals are expected to outperform again in 2026, thanks to their relative affordability and strong population inflows.

Domain, meanwhile, tips Sydney’s prices to rise by 7%, and all four big banks are forecasting moderate national growth of 5–7%.

Rodney McLoughlin notes that although 2025 delivered rapid capital gains, particularly in the mid-year frenzy, 2026 is shaping up as a more “sober” market — but still with solid upside for savvy buyers and sellers.

💰 Government Incentives Drive Demand (and Prices)

The expanded 5% Deposit Scheme — now with no income cap — is turbocharging demand at the affordable end of the market. Homes priced under the scheme’s cap rose 3.6% in the last quarter alone, outpacing higher-value homes.

But there’s a catch: this support is pushing up prices, especially for first home buyers competing in tight segments.

“Unless supply improves significantly, affordability thresholds will keep shifting upward,” said KPMG’s Dr Brendan Rynne. Rodney McLoughlin agrees that while these schemes help individuals enter the market, they also amplify competition — and therefore pricing.

📉 Rate Hikes Return – But Will They Hurt the Market?

In a surprise move, the RBA lifted rates to 3.85% — the first hike since 2023. While this adds around $100 a month on a $600,000 mortgage, economists say it’s unlikely to derail the market entirely.

AMP’s Shane Oliver and others agree: interest rate changes tend to have short-term effects. Structural drivers — like population growth and limited housing stock — still support price resilience.

But households are feeling the squeeze. Finder research revealed 48% of Australians are considering a second job or side hustle in 2026 to keep up with rising costs.

🏡 Where Prices Soared – And May Again

A new PropTrack analysis shows that Sydney homeowners in select suburbs gained over $1 million in equity since 2020. These include:

• Inner West: Concord, Drummoyne, Burwood
• North Shore: Roseville, Northbridge, Pymble
• East: Bellevue Hill (+$5m), Vaucluse (+$4m)

Even middle-income areas like Epping, Eastwood, and Ryde saw annual gains over $150,000. With the market still fundamentally undersupplied, Rodney McLoughlin expects many of these regions to continue seeing above-average growth in the years ahead.

🧭 What to Watch

• Units could outperform houses in 2026 due to worsening affordability.
• Rate hikes may slow price growth but won’t crash the market.
• Rental demand remains extreme, as Sydney’s rent soars past $760/week.
• Buyers under $1.5m remain the most active segment — and the most competitive.

For buyers and sellers, understanding where real value lies — and how market forces are evolving — is key. Rodney McLoughlin continues to advise clients on navigating this complex landscape with clarity, confidence, and long-term vision.

Real Estate Newsletter
This article is a curated summary of various news stories from the past week, offering insights and updates on the real estate market. 6 February 2026

Rodney McLoughlin is a trusted real estate professional with deep insights into the Australian property market. For personalized advice and market expertise, reach out to Rodney today.