Australia's housing market growth slowed at the end of the year, with major cities like Sydney and Melbourne experiencing a slight downturn. This shift comes as homeowners and potential buyers weigh the possibility of further interest rate hikes, creating a mixed outlook for the property sector heading into the new year.
Data from December reveals a national deceleration, though some markets, particularly in Perth and Adelaide, continue to demonstrate strong momentum. The divergence highlights a complex, multi-speed property landscape across the country, influenced by local economic conditions and housing supply levels.
Key Takeaways
- Australia's home value growth slowed in December, with the major cities index rising just 0.5%.
- Sydney and Melbourne, the two largest markets, both saw prices dip by 0.1%.
- Perth and Adelaide were the strongest performers, each recording a 1.9% increase in home values.
- The potential for future interest rate increases from the Reserve Bank of Australia is a key factor impacting market sentiment.
A Tale of Two Markets: Divergence Across Capital Cities
The Australian property market closed the year on a note of caution, with national growth rates losing steam. While the overall Home Value Index for major cities saw a modest 0.5% increase in December, this figure masks significant regional differences. The data points to a clear divide between the eastern seaboard's major hubs and other state capitals.
Sydney and Melbourne, long the powerhouses of Australia's property market, both registered a minor decline of 0.1%. This subtle dip marks a significant change in momentum after a year of recovery and suggests that affordability constraints and concerns over borrowing costs are beginning to have a tangible impact on buyer behavior.
In stark contrast, other cities continued to post robust gains. Perth and Adelaide led the nation, with property values in both cities jumping by 1.9% in a single month. This continued strength is often attributed to more affordable median house prices, strong local economies driven by specific industries, and persistent low housing stock.
Brisbane and Darwin Follow the Upward Trend
The positive momentum was not limited to Perth and Adelaide. Brisbane, Queensland's capital, also saw a healthy 1.6% rise in home values. This continues a trend of strong performance for the city, which has attracted significant interstate migration in recent years. Darwin, in the Northern Territory, matched Brisbane's growth with its own 1.6% increase.
This fragmentation of the national market is becoming more pronounced. While higher interest rates affect borrowing capacity nationwide, local factors such as population growth, employment opportunities, and the sheer availability of homes for sale are creating vastly different outcomes from city to city.
December Property Price Changes
- Perth: +1.9%
- Adelaide: +1.9%
- Brisbane: +1.6%
- Darwin: +1.6%
- Sydney: -0.1%
- Melbourne: -0.1%
The Interest Rate Shadow Looms Large
The primary driver behind the cooling sentiment in the larger markets is the outlook for interest rates. The Reserve Bank of Australia (RBA) has been clear in its communication that it remains prepared to raise rates further if inflation does not return to its target band in a timely manner. This has introduced a significant layer of uncertainty for the property market.
The Role of the RBA
The Reserve Bank of Australia's cash rate is the primary tool used to manage inflation. After a series of rapid hikes to combat rising prices, the bank has held rates steady but has maintained a tightening bias. This means the risk of another rate increase remains on the table, which directly influences mortgage rates and, consequently, housing affordability and buyer confidence.
For prospective buyers, the risk of another rate hike translates to potentially higher mortgage repayments and reduced borrowing capacity. This uncertainty can cause buyers to become more cautious, either by lowering their offers, delaying their purchase, or stepping back from the market altogether. This effect is most pronounced in markets like Sydney and Melbourne, where median house prices are already the highest in the country.
Even for existing homeowners, the prospect of higher rates can dampen sentiment. Those with variable-rate mortgages may be bracing for further increases in their monthly payments, which can impact household spending and overall economic confidence.
What Does This Mean for 2026?
Analysts are now looking ahead to what the new year will bring for Australian property. The consensus is that the market will likely continue on this multi-speed trajectory. The performance of individual city markets will depend heavily on the interplay between interest rates and local supply-and-demand dynamics.
Markets with strong underlying fundamentals, such as positive net migration and a shortage of available housing, may continue to see price growth, albeit likely at a more moderate pace than seen in 2025. Perth and Adelaide, for example, still have housing stock levels well below their long-term averages, which provides a strong floor for property values.
"The divergence we're seeing is a natural market response to varying affordability levels and economic conditions across the states. While the threat of rate hikes is a national headwind, its impact is not uniform. Markets with lower entry points and tight supply are proving more resilient."
Key Factors to Watch
Several key indicators will be crucial to monitor in the coming months:
- Inflation Data: The single most important factor influencing the RBA's next move. A faster-than-expected return to the target inflation range could see the bank hold or even cut rates, which would provide a significant boost to the property market.
- Listing Volumes: An increase in the number of properties for sale could give buyers more choice and negotiating power, potentially placing downward pressure on prices, especially in softer markets.
- Consumer Confidence: Overall sentiment about the economy and personal finances plays a huge role in major purchasing decisions like buying a home.
- Migration Numbers: Australia's strong population growth has been a key pillar supporting housing demand. Continued high levels of migration will help underpin prices, particularly in the rental sector.
Ultimately, the slowdown at the end of the year serves as a reminder that the property market is not immune to broader economic forces. While the price falls in Sydney and Melbourne are minor, they signal a shift in market dynamics and set the stage for a more subdued and varied year ahead for Australian real estate.
