Developing cities are facing price declines as the real estate market surpasses the $12 trillion milestone
The housing market has reached an impressive new high, but economists say rising interest rates will force a downturn even in the hottest regions.
The total value of Australia’s 11.45 million residential properties exceeded $12 billion for the first time in the December quarter, according to data released by the Australian Bureau of Statistics on Tuesday.
In the three months to December, rising property prices across the country pushed the value of Australia’s housing market up 3.2% to $12.3 billion, up from $11.9 trillion in September.
But the latest figures precede one key event that is expected to lead to a wider decline in real estate.
In February, the RBA launched its first interest rate hike in more than two years – and economists say at least one, if not more, is on the way.
Economists at all four major banks have cut their property price forecasts for 2026 and 2027 after the interest rate hike, and the hottest cities of Perth and Brisbane are expected to see a quick reversal in price growth.
Rising interest rates are expected to weigh on housing markets, although limited housing supply will make some cities outperform in the short term. Photo: Getty
While expected changes in housing policies such as the Capital Gains Tax rebate could put pressure on the market, economists at the Commonwealth Bank say high levels of mortgages will be the main driver of the recession.
“After a strong performance, house price growth is expected to moderate for the remainder of 2026,” said CBA chief economist Trent Saunders.
“The recession mainly reflects the impact of higher mortgage rates, with February’s rate hike and further hikes in May adding to borrowing costs and subdued consumer sentiment.”
Excluding factors including price increases, slowing population growth and tax changes, the CBA said its house price growth forecast would reach 7% in both 2026 and 2027 – compared to its new forecast of 5% and 3% reductions.
Here’s how property prices have performed across the country in 2025:
PropTrack data shows national house prices rising 8.8% in 2025, and all the major banks now predict a decline of around 5% in 2026 and between 3-4% in 2027.
Real estate price growth forecasts – National
| The bank | 2026 forecast | 2027 forecast |
| CBA | 5% | 3% |
| ANZ | 4.8% | 3.8% |
| NAB | 5% | 4% |
| Westpac | 5% | 4% |
But what the national picture fails to show is the wide disparity between states and territories, where there is strong supply and strong demand for property development in Perth and Brisbane.
This performance is expected to continue in the near term, but economists expect a sharp reversal in 2027.
“Large central cities are expected to continue to outpace Sydney and Melbourne this year, with the gap most pronounced in Perth and Brisbane,” Mr Saunders said.
“The question is how long can this strong growth last? Based on our forecasts, not much beyond 2026.”
By the end of 2027, CBA forecasts see annual price growth in Perth and Brisbane falling to around 4%, down from last year’s 17.2% and 14.6% respectively.
“As interest rates are high, housing construction is expanding, the population is shrinking, and affordability issues are becoming a liability, price growth in Brisbane and Perth is expected to slow.”
Property price growth forecasts – Major cities
| in Sydney | in Melbourne | Brisbane | Perth | Adelaide | Hobart | ACT | Darwin | |
| 2025 (original) | 6.4% | 4.5% | 14.6% | 17.2% | 12.8% | 7.8% | 4.2% | 14.5% |
| CBA predictions | ||||||||
| 2026 | 2% | 1% | 12% | 15% | 9% | 5% | N/A | 4% |
| 2027 | 3% | 2% | 4% | 4% | 3% | 2% | N/A | 2% |
| ANZ predictions | ||||||||
| 2026 | 2.5% | 2.1% | 9.5% | 10.9% | 6.1% | 3.8% | 2.2% | 13.7% |
| 2027 | 3.5% | 4.2% | 3.9% | 4.3% | 2.3% | 1.7% | 1.6% | 8.8% |
| NAB predictions | ||||||||
| 2026 | 3.3% | 2.1% | 12% | 13.3% | 9.5% | 2.8% | N/A | N/A |
| 2027 | 2.7% | 5.8% | 4.9% | 6.2% | 3.7% | 2.4% | N/A | N/A |
| Westpac forecasts | ||||||||
| 2026 | 3% | 4% | 7% | 8% | 6% | 3% | N/A | N/A |
| 2027 | 3% | 6% | 4% | 6% | 5% | 4% | N/A | N/A |
Affordability constraints in Sydney will remain a ‘significant headwind’ on price growth, he said, while Melbourne remains ‘very volatile’ following years of underperformance which has seen it slide down the median property price ladder, from second to sixth.
“High levels of construction in recent years, soft local economic conditions, and Victoria’s investor-friendly tax base are likely to prevent a strong return,” Mr Saunders said.
“Having said that, there is a real Melbourne atmosphere.
“If demand catches up to improved market access, Melbourne could see stronger than expected price growth over the next 18 months.”
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Property price growth in Melbourne is expected to remain subdued in 2026 and 2027. Photo: Getty
Revising its rate forecasts in late February, Westpac said tighter supply would be a key factor as higher interest rates weighed on affordability.
“Just when it looked like it was safe to go back on the water again, the ‘rate rise surprise’ has sparked new fears about the outlook for Australia’s housing market in 2026,” Westpac’s head of major forecasting in Australia, Matthew Hassan, said.
“However, there are indications that housing markets may be strengthening.
“One of the most striking features at the moment is the tight supply, particularly in the Brisbane, Adelaide and Perth markets which continue to post strong and robust price gains.”
He said some of these markets are entering “almost uncharted territory” in terms of micro availability and expanded accessibility.
Tight supply and strong demand have caused Perth’s property market to double in five years, but economists say the rapid growth will not last “beyond 2026”. Photo: realestate.com.au
ANZ senior economist Madeline Dunk noted that the overall list was more than 50% below normal levels in smaller cities such as Brisbane, Perth, Darwin and Adelaide.
“In contrast, new listings are slightly higher than normal in Melbourne and Sydney. We expect Melbourne and Sydney to underperform, particularly in the first half of the year, with prices growing by less than 3% in 2026.”
It comes as the latest Westpac home ownership report revealed a shortage of property is one of the most important issues for Australians trying to break into the property market, with one in four first home buyers reporting a lack of listed properties holding them back.
