2025 saw significant growth in housing prices across Australia, particularly across the lower quartile and middle of the market. However, according to Cotality’s January national Home Value Index, the outlook for the 2026 housing market is “less optimistic than 2025”. It’s unlikely that the growth seen in 2025 will be matched in the upcoming year, for multiple reasons.
Reason #1 – The Risk of a Cash Rate Hike
Cotality acknowledges an “elevated” risk of the Reserve Bank of Australia (RBA) choosing to increase the cash rate at their next meeting on February 3. The Commonwealth Bank of Australia (CBA) are aligned in their prediction. They posit that economic growth pushing Australia’s economy to its limit, and heightened inflation rates, will push the RBA to take a cautious approach and raise the cash rate by 0.25%.
The current cash rate, which sits at 3.6%, is significantly higher than the 2.5% seen before the COVID-19 pandemic. As it is, Cotality finds that a typical Australian household contributes 45% of their pre-tax income to servicing a mortgage on a median-priced dwelling.
According to Cotality’s research director, Tim Lawless, “renewed speculation…that the next move from the RBA could be a hike has dented housing confidence.” While, as the CBA state, future rate hikes are entirely dependent on the future economic landscape, buyer confidence is dimming. The Westpac-MI monthly consumer sentiment index decreased by 9% in December of 2025.
Reason #2 – Barriers to Housing Affordability
Recent Cotality data highlights that it would take a typical household on the median income 11 years to save a 20% deposit. This statistic suggests that the unaffordability of property will naturally slow buyer activity in 2026.
Lawless states that “a ‘higher for longer’ setting on interest rates, alongside a resurgence in cost-of-living pressures and worsening affordability pressures, looks to have taken some heat out of the market.” However, a couple of factors will contribute to steadying market prices in 2026.
The Factors Preventing House Prices From Crashing in 2026
Low stock:
Housing supply remains insufficient, which is expected to prevent a significant drop in prices.
Government incentives:
Grants and incentives from the government help stimulate buyer activity. For example, eligibility for the First Home Guarantee Scheme was expanded in October of 2025 and has since resulted in a jump in applications by first home buyers across every major Australian state, according to Loan Market Group.
Due to affordability pressures, competition between first home buyers and investors will likely remain in suburbs with low-to-middle ranged property prices in 2026.
Looking Ahead
While it’s anticipated that price growth will ease slightly in 2026, stock levels and government incentives will boost resilience. Our team of experts are here to support you as you navigate changes in the property market. We’ll keep you informed so you can make the best decisions to enable you to reach your financial goals.
At UFinancial, we’re here to guide you through every step of your homeownership journey. Whether you’re looking to buy, refinance, or invest, our team can help you find the right loan for your needs!
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Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent. Content developed in partnership with IFPA.
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