Australia’s Housing Market FY25-26: A New Chapter of Growth, Balance, and Challenge

The Australian property market is moving into the next stage of the property cycle - one of continued price growth.

Domain’s latest Price Forecast Report for FY25-26 reveals that Australia’s property market is expected to see continued price growth over the next 12 months, with major capital cities Sydney and Melbourne driving national trends.

Unlike the turbocharged growth of the post-COVID boom or the sharp rebounds of past rate-cutting cycles, this future upswing will be defined by subtle shifts in momentum, affordability limits, and policy intervention.

The range of capital city price growth is expected to narrow.

Sydney and Melbourne are forecast to lead, as they typically respond more quickly to interest rate changes.

Meanwhile, Adelaide and Perth – standout performers over recent years – are expected to experience slower positive growth as affordability constraints intensify.

Brisbane unit prices are expected to moderate from the previously unsustainable double-digit growth, while house prices continue to grow at a pace similar to that of last year.

As Dr Nicola Powell, Domain’s Chief of Research and Economics, notes:

“We’re moving into a more sustainable stage of growth.

Interest rate cuts, structural undersupply and targeted government support will drive prices higher but affordability will act as a natural brake, particularly in cities where price-to-income ratios are already stretched.”

National outlook: Growth continues, but the landscape is evolving

Domain forecasts house prices in the combined capital cities to rise by 6% over FY26, with units gaining around 5%.

This comes off the back of falling borrowing costs, government incentives for first-home buyers, and the stubborn structural shortfall of housing supply relative to demand.

But as Dr Powell rightly points out:

“This upswing will likely be more modest than what we’ve seen during previous interest rate-cutting cycles.

Rate reductions are expected to be smaller and more spaced out. And the affordability challenge will keep a lid on just how fast prices can rise."

Table 1. House price forecasts 

HOUSES | STRATIFIED MEDIAN PRICE
	ANNUAL CHANGE		LEVEL		RECORD	BELOW PEAK
Capital City	FY25	FY26	FY25	FY26	FY26	FY26
Sydney	4%	7%	$1,717,107	$1,829,576	YES
Melbourne	0%	6%	$1,046,246	$1,112,623	YES
Brisbane	5%	5%	$1,037,357	$1,093,414	YES
Adelaide	12%	4%	$1,013,204	$1,049,117	YES
Canberra	-2%	4%	$934,225	$981,808	NO	-7%
Perth	7%	5%	$934,225	$981,808	YES
Combined capitals	4%	6%	$1,194,942	$1,264,614	YES

Table 2. Unit price forecasts

UNITS | STRATIFIED MEDIAN PRICE
	ANNUAL CHANGE		LEVEL		RECORD	BELOW PEAK
Capital City	FY25	FY26	FY25	FY26	FY26	FY26
Sydney	3%	6%	$835,819	$888,822	YES
Melbourne	-3%	5%	$555,522	$584,400	NO	-3%
Brisbane	12%	5%	$670,798	$701,490	YES
Adelaide	10%	3%	$568,000	$586,366	YES
Canberra	-13%	3%	$531,784	$546,265	NO	-15%
Perth	12%	6%	$519,551	$552,487	YES
Combined capitals	3%	5%	$680,568	$717,266	YES

Capital city snapshots: where the growth will be

Sydney

• House prices: +7% → $1.83 million median (up $112,000)

• Unit prices: +6% → $889,000 median (up $53,000)

Sydney’s market is the most sensitive to interest rate cuts, thanks to its high debt levels and willingness of buyers to stretch for property.

The structural imbalance, not enough new homes, strong incomes, low unemployment, will continue to fuel growth.

Dr. Powell highlights:

“Sydney’s housing story is increasingly one of divide, between those with housing equity who can trade up, and those locked out by price.”

Melbourne

• House prices: +6% → $1.11 million median

• Unit prices: +5% → $584,000 median (still 3% below 2021 peak)

Melbourne’s relative value is becoming clear.

The gap between Sydney and Melbourne house prices has widened to 63% (up from 26% in 2019) offering a competitive edge for buyers.

This creates an attractive proposition for price-sensitive buyers and investors.

Add to that Victoria’s projected nation-leading population growth by FY27, and you have solid foundations for a renewed upswing.

A 6% rise will see house prices reach a record $1.1 million, fully recovering from the city’s two-year downturn. With prices still 63% more affordable than Sydney, Melbourne retains a competitive edge for buyers.

Dr Powell says:

“Melbourne’s affordability compared to Sydney, combined with strong population growth, makes it ripe for price gains.

But Victoria’s higher property taxes and budget constraints could temper the recovery somewhat."

Brisbane

• House prices: +5% → $1.09 million median

• Unit prices: +5% → $701,000 median

Brisbane’s house price gains are being tempered by affordability challenges, mortgage repayments now consume 50% of household income, up from 28% in 2019.

Yet lower interest rates, Olympics-driven infrastructure and ongoing supply shortages are likely to keep the market buoyant.

Dr Powell notes:

“Brisbane’s housing market still has room to grow, but affordability constraints are reshaping the market.We’re seeing more multi-generational living and shared housing.”

Adelaide

• House prices: +4% → $1.05 million median

• Unit prices: +3% → $586,000 median

Adelaide has been one of the big winners post-COVID, but that affordability edge has eroded.

Mortgage repayments now exceed 55% of dual-income household earnings, up from 27% in 2019.

With population growth slowing, Adelaide’s price cycle is maturing.

Perth

• House prices: +5% → $982,000 median

• Unit prices: +6% → $552,000 median

Perth remains one of the most resilient markets.

It boasts the highest rental yields among capitals, leaving scope for prices to rise further if yields compress.

• Also read:Australian housing market update | June 2025
• Also read:Brisbane housing market update | June 2025
• Also read:State by State Property Market Outlook by Dr. Andrew Wilson | Property Insiders
• Also read:Sydney housing market update | June 2025
• Also read:This week’s Australian Property Market Update – Latest Data, State by State June 17th 2025

Affordability remains comparatively better than in the eastern states, which gives buyers more borrowing flexibility.

Canberra

• House prices: +4% → $1.10 million median (still 7% below 2022 peak)

• Unit prices: +3% → $535,000 median (still 15% below 2023 peak)

Canberra’s housing market benefits from low price-to-income ratios and public sector job stability.

Price growth is likely to remain modest, reflecting more responsive housing supply and steady population trends.

The key drivers of FY26

1. Interest rate cuts:

The RBA has cut rates by 50 basis points in 2025, with the market expecting another 80 basis points by mid-2026.

This will improve borrowing capacity and push prices higher, particularly in rate-sensitive markets like Sydney and Melbourne.

2. Population growth:

While still positive, growth is slowing, especially in WA and QLD, taking some heat out of demand.

But average household size is rising again as affordability pressures drive co-living arrangements.

3. Supply constraints:

Housing completions are picking up but will still fall short of Housing Accord targets.

Labour shortages and planning delays remain key bottlenecks.

4. First-home buyer support:

Schemes like scrapping lenders mortgage insurance (LMI) and expanding shared equity will boost demand, particularly in affordable segments.

Dr Powell warns:

“Policy support will help first-home buyers, but unless supply rises meaningfully, it risks putting more upward pressure on prices.”

Investor takeaways: where’s the smart money headed?

The capital city outlook for FY26 reflects a shift in growth leadership from smaller, affordability-driven markets to larger, interest rate-sensitive ones.

Melbourne is expected to record a notable acceleration in price growth, and Sydney to a lesser extent.

These cities tend to respond more directly – and more quickly – to interest rate changes, given higher debt levels and income profiles.

Conversely, Perth, Adelaide and Brisbane – standout performers since 2020 – are forecast by Domain to see a slowing in momentum as affordability constraints become more binding, as is typically the case following consecutive years of high price growth.

Investors looking to capitalise on these markets should zero in on quality locations, the kind of areas where land scarcity, lifestyle appeal, and infrastructure mean long-term demand will remain strong.

Units in inner and middle-ring suburbs across our major cities could see rising demand, particularly as detached housing prices continue to stretch beyond the reach of many buyers.

Investors who choose well-located family friendly apartments, villa units and townhouses, close to jobs, transport and lifestyle options, may find this segment offers both rental resilience and scope for capital growth, especially as affordability constraints push more buyers and renters toward these options.

Table 3. Capital gains and average earnings

CAPITAL GAINS AND AVERAGE ANNUAL EARNINGS FY 26
	CAPITAL GAINS			CAPITAL GAINS RELATIVE TO EARNINGS
Capital City	HOUSES	UNITS	FULL TIME EARNINGS	HOUSES	UNITS
Sydney	$112,468	$53,002	$103,251	109%	51%
Melbourne	$66,377	$28,878	$100,251	66%	29%
Brisbane	$56,057	$30,693	$101,592	55%	30%
Adelaide	$35,912	$18,366	$96,585	37%	19%
Canberra	$47,582	$14,481	$113,277	42%	13%
Perth	$47,582	$32,936	$112,154	42%	29%
Combined capitals	$69,672	$36,697	$102,742	68%	36%

That said, caution is warranted.

Oversupply remains a real risk in some unit markets, particularly in Melbourne, where a significant volume of completed but unsold developer stock continues to weigh on the outlook.

Finally, investors should be realistic about what interest rate cuts can deliver this time around.

Unlike previous rate-cutting cycles that supercharged property prices, this phase is expected to deliver more measured gains.

Why Now Is a Window of Opportunity for Strategic Property Investors

I believe we’re in a window of opportunity for property investors who take a long-term view.

Right now, we’re seeing what some would call a “perfect storm” of fundamentals that are aligning to support strong property markets in the years ahead:

1. Continued rapid population growth is putting pressure on housing.
2. An acute undersupply of dwellings,
3. A chronic shortage of skilled labour, making new development slower and more expensive.
4. Inflation has moderated, now sitting within the RBA’s target range.
5. Interest rates will keep falling – bringing more buyers into the market
6. Government first homebuyer incentives will pour fuel on the flames of our undersupplied housing market.

As interest rates keep falling and confidence returns among both buyers and sellers, we’ll enter the next phase of the property cycle.

And historically, this stage has delivered some of the best capital growth for those who act early.

To be clear, I’m not suggesting anyone try to "time the market"—that’s near impossible to get right consistently.

However, many successful investors built significant wealth by buying during the early stages of an upturn, when fear still lingered and competition was low.

Looking ahead, demand will continue exceeding supply for the foreseeable future. Strong immigration, restrictive planning regulations, and the slow delivery of new housing stock will keep upward pressure on prices.

Meanwhile, the cost to deliver new dwellings is rising and will continue to rise.

It’s not just supply chain issues or labour shortages—it’s also financial viability. Developers won’t launch projects unless the numbers stack up, and right now, that means new stock will need to enter the market at significantly higher prices than existing homes.

Eventually, as interest rates ease further and media headlines turn positive, consumer sentiment will rebound.

Pent-up demand will be unleashed. And just as it always does, greed (FOMO) will overtake fear (FOBE – Fear of Buying Early) as the cycle kicks into gear.

So if you’re in a financially stable position and thinking of buying your next home or investment property—this may be your moment.

Because in property, like in life, you don’t get rewarded for waiting. You get rewarded for acting with clarity while others are uncertain.

Fact is, the smart money is already on the move.

But what about you?

Are you clear on how to take advantage of these market conditions — or are you still waiting for "certainty"?

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