Competition in the auction began to moderate late last year, but demand is expected to remain strong through 2026. Photo: Jeremy Piper
Sydney families will need to earn about $305,000 by the end of 2026 to afford a central city house and $165,000 a year for a unit if expected interest rates and price increases take place, new data shows.
An analysis of PropTrack’s pricing model and rate forecasts from the nation’s two largest banks showed the window for better housing affordability may soon be closing.
Both ANZ and Westpac now forecast no further interest rate cuts in 2026 due to stubborn inflation, and both banks expect rates to remain on hold until the end of the year.
This sustainable rates climate will coincide with continued price increases over the course of the year which, although slower than in 2025, could mean consumers need a much bigger budget to keep up.
PropTrack modeling has predicted continued price increases beyond 2026, with Sydney prices tipped to rise by around five per cent a year, down from around 7 per cent by 2025.
The research group noted that this increase will be driven by a growing immigrant population, housing shortages and government consumer supports such as the First Home Affirmation Program.
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This Castle Hill home recently sold for $2.68m.
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This energy will be a “tailwind” that could dampen some of the market impact of the changing interest rate environment, PropTrack economist Angus Moore told The Daily Telegraph in December.
Continued price increases will also be fueled by strong demand for more affordable properties – rather than demand for properties at the higher end of the market.
A home buyer looking to buy a median ($1.62m) Sydney house with a 20 per cent deposit currently needs an income of around $291,000 to buy it and not go into mortgage distress.
Avoiding mortgage stress meant that the buyer would spend more than a third of his income on housing costs.
Apartment buyers currently need an annual income of $157,000 to afford a median-priced unit with a 20 percent deposit and average mortgage.
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Real Estate Buyers Assocation president Melinda Jennison said interest will play an important role in the market.
Another 5 percent price increase would change this requirement.
With the average house now worth around $1.7m, a home buyer would need around $305,000 to afford it.
Unit buyers will need to earn $165,000 by the end of 2026 to afford a median-priced home.
The president of the Real Estate Buyers Agents Association of Australia Melinda Jennison said the housing shortage will push prices up beyond 2026.
“We are far behind the goals of the Housing Accord and, without a reduction in immigration, demand to buy and rent will continue to outstrip supply in many cities,” he said.
“I expect continued deepening in affordable housing markets and in urban areas, as high-income households are moved out of the suburbs into the middle and outer suburbs.”
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Hotspotting founder and property analyst Terry Ryder.
Terry Ryder, director of research group Hotspotting, wrote to investors that most markets across Australia will perform well in 2026.
“Demand is being driven by high levels of investment in infrastructure (and) high population growth,” he said.
“At the same time … we continue to build very few new homes, real estate listings are at record lows everywhere and vacancies continue to hover at historic lows.”
Mr Ryder added that $900 billion in major infrastructure projects would make it challenging for new construction to keep up with demand.
“It creates economic growth and jobs – and therefore demand for real estate,” he said.
“And it’s exacerbating the shortage of new homes because vendors are working on big-ticket government projects rather than building new homes and units.”
This Greystanes home recently sold for $1.625m.
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Intuitive finance director Andrew Mirams said first home buyers will be a key driver of the 2026 market due to government support allowing them to buy with 5% deposits.
“Government incentives and a 5 percent deposit program, while increasing purchase limits and removing income tests, mean this market will grow in 2026 and beyond,” he said.
A potential wrecking ball in current forecasts for further price growth in 2026 would be a rise in interest rates – expected by CBA and NAB.
The CBA predicts one rate hike in 2026 which will come in February. NAB has predicted two rate hikes for 2026, one in February and the other in May. Most other forecasters dismiss inflation in this category.
Mr Mirams said rising prices could impact the market and make buyers reluctant, but sloppy construction at a time of strong population growth could reduce much of the impact.
“We still have a building under construction, so if the government ignores migration, we will continue to have shortages to meet the needs.”
