Price Forecast Report
Financial Year 2025-26
The year ahead: Navigating shifts & opportunities
Executive summary
Australian home prices are expected to continue rising through FY26 (figure 1). Growth is anticipated to accelerate marginally compared to FY25, supported by lower borrowing costs, government support for firsthome buyers and rising household incomes. Additionally, a national housing shortfall remains a key driver, with supply continuing to fall short of demand generated by population growth – although this pressure is expected to gradually ease as migration slows and construction costs stabilise.
That said, the upswing this time around is likely to be more modest than during past interest rate-cutting cycles. This reflects expectations of smaller and more measured rate reductions, as well as entrenched affordability challenges, which will help to limit the pace at which prices and rents can rise.
The range of capital city price growth is expected to narrow. Sydney and Melbourne are forecast to lead, since they typically respond faster to interest rate changes. Meanwhile, Adelaide and Perth – standout performers over recent years – are set for slower positive growth as
affordability constraints mount. Brisbane unit prices are expected to moderate from previously unsustainable double-digit growth, while house prices continue to grow at a pace similar to last year.
Home prices are expected to reach record levels in Sydney, Brisbane, and Adelaide by the end of FY26. In Melbourne, house prices are also forecast to reach record highs, while unit prices are projected to partially recover, remaining 3% below their historical peak. In Canberra, house prices are expected to be 7% below their historical peak, and unit prices 15% below.
Risks to the outlook are broadly balanced, with downside risks tied to weakening affordability and population growth, while upside risks include more aggressive rate cuts and stronger-than-expected responses to government support programs.
Figure 1. House and unit price forecasts FY26.
Capital city breakdown
The capital city outlook for FY26 reflects a shift in growth leadership from smaller, affordability-driven markets to larger, interest rate-sensitive ones (table 1).
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 to see a slowing in momentum as affordability constraints become more binding, as is typically the case following consecutive years of high price growth (figure 2).
Melbourne, in particular, is well-positioned for a recovery given its relative underperformance since 2020, improved affordability relative to other cities and improving economic outlook. Sydney should also pick up, as house prices are typically more responsive to shifts in the interest rate compared to other markets in the near term.
Table 1. House and unit price forecasts.
Figure 2. Capital city property growth momentum.
Despite city-level differences, price growth in all capitals will remain underpinned by a shared set of structural and cyclical drivers:
1. Lower interest rates will help boost prices as the borrowing power of Australians is improved. With the reducing the cash rate by 50 basis points already in 2025 and the market pricing in an additional 80 basis points of cuts by mid-2026 (as at end-May 2025), the
lower cost of borrowing is expected to boost buyer capacity (figure 3). The price uplift tends to be more pronounced in Sydney and Melbourne, potentially reflecting the larger savings and additional borrowing power from interest rate cuts when incomes are higher and households are more indebted.
Feb-25
Figure 3. Market implied cash rate projections.
2. Housing demand will remain strong but ease somewhat as population growth is projected to slow (figure 4). The slowdown in population growth is expected in all capital cities but is anticipated to be largest in Western Australia and Queensland over the next couple of years. At the same time, average household size has increased since 2023 – partly due to affordability constraints and likely reflecting a partial reversal of the shift toward smaller households during the COVID-19 pandemic. Any downward pressure on prices from an easing in
housing demand may be tempered by a possible reversal in housing preferences towards smaller-sized households, especially if they have been pressured higher in recent years by affordability considerations.
Figure 4. Australia’s population growth projections.
3. Housing supply is likely to pick up modestly, which will help temper prices at the margin. It is still unlikely that supply pipelines will meet the federal housing accord target of 240,000 additional homes in FY26 (figure 5). While moderating construction costs are improving feasibility, labour constraints and planning bottlenecks continue to limit the pace of completions.
4. Prices will be supported by an expansion in an array of first-home buyer support measures and a pickup in household incomes. The first-home buyer support measures will likely support higher price growth in the more affordable housing pockets, including the unit market. With wages picking up and inflation easing, real income growth is expected to return, improving serviceability and supporting higher prices.
Together, these factors suggest FY26 will mark a transitional year, one in which momentum rotates toward the eastern seaboard capitals while the post-COVID frontrunners begin to level out. Nonetheless, the national picture remains of continued price growth, shaped by favourable macroeconomic conditions, sustained structural undersupply, and targeted policy support.
Figure 5. Annual increase in housing supply.
Sydney house prices are expected to accelerate in FY26, with the median forecast to reach a record $1.83 million – an increase of 7% or approximately $112,000 over FY26. This projected gain is equivalent to 1.1 times the average full-time pre-tax earnings, underlying the growing affordability challenge in the city.
A big driver behind this is lower borrowing costs, with Sydney’s market typically being more sensitive to interest rate changes than most other capital cities, especially in the short term. This reflects the higher levels of debt and willingness to take on leverage, so shifts in borrowing costs have a larger impact on the market in the near term. On top of that, strong fundamentals like low unemployment, rising incomes, and a sluggish uplift in home approvals are all expected to help push prices higher.
Structural imbalances between demand and supply, combined with cyclical tailwinds from monetary policy, suggest Sydney’s price growth will outpace most other capital cities over the medium term.
Sydney unit prices are also set to accelerate, with the median expected to reach $889,000 by the end of FY26 – an increase of 6% or approximately $53,000 over FY26. This growth will be supported by a mix of affordability pressures in the detached housing market and increased first-home buyer demand.
Affordability constraints and first-home buyer incentives will likely push more buyers toward units, particularly in well-located suburbs with access to transport and amenities. However, unit prices are expected to lag behind houses, partly due to stronger price momentum in the detached housing market. Houses also tend to outperform over time because land values typically rise faster than building costs, and houses usually have greater land exposure. In turn, the price gap between houses and units is expected to widen further to historically high levels of 106% by the end of FY26.
Factors impacting price outlook
Strengths
• Most sensitive to interest rate cuts
• Strong economic fundementals
Weakness
• Affordability constraints most pressing
Melbourne
Melbourne house prices are expected to pick up from the second half of 2025, with the median forecast to reach a record $1.11 million by the end of FY26 – an increase of 6% or approximately $66,000 over FY26. This would mark a full recovery from the 2022-24 downturn.
A key advantage for Melbourne is its relative value compared to other capital cities, putting it in a strong position to benefit from lower interest rates (figure 6). In 2019, Sydney houses were 26% more expensive than Melbourne. That gap has now widened to 63% in March 2025, significantly enhancing Melbourne’s appeal, particularly for price-sensitive buyers. Meanwhile, Brisbane and Adelaide – once 40% cheaper than Melbourne – are now nearly on par, further reinforcing Melbourne’s relative affordability.
Melbourne unit prices are also expected to rise, supported by lower interest rates, relative affordability and a suite of first-home buyer incentives. The median price is forecast to reach $584,000 by June 2026, still 3% below their 2021 peak. Growth is likely to lag behind houses, in part due to reportedly high stock levels of completed but unsold apartments held by developers.
FY26 Forecast
This relative value, combined with strong projected population growth, positions Melbourne for renewed near-term price gains. Victoria is expected to lead the nation in population growth by FY27, up from third place in FY25. Investors might also be drawn in by the potential for capital gains, as falling borrowing costs push up property prices faster than rents.
That said, Victoria’s comparatively weaker economic conditions and stretched state finances may continue to weigh on buyer sentiment. Higher taxes and a more limited capacity for infrastructure investment could make it less attractive than other states.
Forecast growth 6% ($66,000)
House price $1.11 million
Forecast growth 5% ($29,000)
Unit price $584,000
Record high 3% below 2021 peak
Factors impacting price outlook
Strengths
• Relatively affordable
• Strong population growth (fastest growing in FY27)
Weakness
• State finances (taxes are not as investor friendly)
Figure 6: Melbourne houses have become relatively cheaper compared with other capital cities.
Brisbane
Brisbane house prices are forecast to grow by 5% in FY26, maintaining a pace similar to the previous year. This would see the house price reach a record $1.09 million by June 2026, an approximate rise of $56,000 over FY26. However, affordability challenges are emerging as a key limiting factor. Affordability constraints are expected to act as a brake on further price growth. For instance, the mortgage burden for new-home buyers has increased significantly – a typical dual-income household buying a median-priced house with a 20% deposit now devotes around 50% of their income to mortgage repayments –up sharply from 28% in 2019.
These affordability pressures are reshaping household dynamics, with more Brisbane residents taking on housemates or staying longer in the family home. This trend is reflected in the rising average household size, as buyers and renters alike adjust to elevated housing costs (figure 7).
Brisbane unit price increases are expected to ease from double-digit annual growth since late 2023 to more sustainable single-digit gains. Prices are forecast to reach a record $701,000 by June 2026. The higher projected growth of units relative to houses reflects stronger price momentum, projected benefits from Brisbane Olympicsrelated infrastructure and increased demand for more affordable homes, especially following consecutive years of strong price growth.
FY26 Forecast
Affordability constraints are likely to be offset by lower interest rates, rising incomes, strong infrastructure investment and ongoing challenges in housing supply keeping pace with growing demand. The housing supply imbalance should become less acute as population growth slows and supply gradually picks up. Trade shortages and the competition between residential and public infrastructure construction are likely to continue limiting the pace at which new homes can be delivered.
Change in average household size (people aged 15 years and older) from July 2019 to July 2024.
Forecast growth
5% ($56,000)
House price
$1.09 million
Forecast growth 5% ($31,000)
Unit price $701,000
Factors impacting price outlook
Strengths
• Housing supply not keeping pace with demand
• Ongoing strong investment in lead up to Olympics
Weakness
• Deterioration in housing affordability
Figure 7: Housing affordability pressures likely driving larger-sized households.
Adelaide
Adelaide’s house price growth is expected to slow in FY26. It is forecast to rise by a modest 4% –approximately $36,000 over FY26. House prices are projected to reach a record $1.05 million by June 2026. The key headwind is affordability: mortgage repayments now account for more than 55% of a typical dual-income household’s earnings, up from 27% in 2019 (figure 8).
Looking at the bigger picture, Adelaide has outperformed in terms of house price gains since the pandemic, largely because it’s been relatively affordable compared to other states. However, that affordability edge has diminished. In fact, cumulatively, house price growth in Adelaide since 1993 now closely mirrors that of other capitals, signalling a maturing price cycle. With affordability stretched and fewer comparative advantages remaining, further strong gains are unlikely.
Population growth is another moderating force. South Australia’s population is expected to grow at the slowest pace among the capital cities over the next few years (figure 4), placing less upward pressure on demand than in faster-growing regions.
Adelaide’s unit market is also set for more modest growth, with the median forecast to hit a record $586,000 by the end of FY26. While momentum is slowing, demand for more affordable homes remains firm. A weak pipeline of new projects, growing demand for more affordable properties given the recent run-up in prices and an array of first-home buyer support measures will support price.
Overall, Adelaide’s housing market is transitioning into a more stable phase, in which price growth aligns more closely with income growth and demographic fundamentals.
FY26 Forecast
Forecast growth 4% ($36,000)
House price $1.05 million
Forecast growth 3% ($18,000)
Unit price $586,000
That said, prices should remain supported by a limited new housing supply. The pipeline of dwellings under construction remains constrained, and cost and labour pressures continue to weigh on project commencements.
Factors impacting price outlook
Strengths
• Strong price momentum
• Current shortage of available properties
Weakness
• Sharp deterioration in affordability
• Slow population growth
Record high
Record high
Figure 8: New mortgage repayments as a share of dual-income household.
income.
Perth
Perth house prices are expected to exceed $1 million by the end of 2026. While growth may slow a little, prices are still expected to rise at a solid pace. That momentum is being driven by lower interest rates, high income growth and the strongest population growth out of any of the other capital cities.
Importantly, affordability is likely to be less of a brake in Perth compared to Brisbane and Adelaide as new-home buyers face a comparatively lower mortgage burden, which allows more flexibility in pricing and borrowing (figure 8).
Perth home prices could rise if investors are willing to pay more for the same rental income, since Perth offers the highest rental returns of any major city (figure 9). For example, if returns in Perth dropped to Canberra’s level, an unlikely and extreme scenario, prices could go up by 15%.
Unit prices are expected to grow at a similar pace to those of houses, with the median projected to reach a record $552,000 by June 2026. Growing affordability constraints and first-home buyer support will likely bolster further gains.
Overall, Perth’s housing market remains one of the most resilient, underpinned by strong fundamentals
and comparatively fewer affordability constraints. While the pace of growth is expected to ease from recent peaks, the city remains well-positioned for continued outperformance in FY26.
FY26 Forecast
Forecast growth
5% ($48,000)
House price
$982,000
Forecast growth
6% ($33,000)
Unit price
$552,000
Factors impacting price outlook Strengths
• Housing supply not keeping pace with demand
• Strong economy and state finances
Weakness
• Deterioration in housing affordability
Figure 9: Perth’s strong
to compress.
Canberra
Canberra house prices are expected to enter the early stages of a recovery in FY26. House prices are forecast to reach $1.10 million, an approximate $39,000 gain over FY26. This recovery places house prices about 7% below their mid-2022 peak, and halfway into a recovery.
Unit prices are also expected to gradually recover to be 15% below their 2023 peak by the end of FY26.
FY26 Forecast
Canberra is the most affordable capital city in Australia, based on its low home price-to-income ratio, which could attract growing interest from potential buyers. This, in part, reflects its comparatively moderate population growth and more responsive supply of housing.
Looking ahead, price growth is likely to remain lower than in other capital cities, given more modest population growth and less acute housing shortages, as reflected in comparatively high vacancy rates (figure 10).
The re-election of the Labor government may also provide greater stability for the job market outlook, given the high share of the workforce employed in the public sector. This could give buyers greater confidence to transact. Lower interest rates, first-home buyer support and high rental yields relative to other capital cities may also help support the recovery in house and unit prices.
Forecast
House price
$1.1 million
Forecast growth 3% ($14,000)
Unit price
$535,000
Factors impacting price outlook
Strengths
• Housing affordability
• Economic stability
Weakness
• Low population growth
• More responsive housing supply
Figure 10: Vacancy rate. March 2025.
Upward price drivers Downward price drivers
Easing financial conditions
The RBA has cut interest rates by 50 basis points since February. As at end-May, market expectations are pricing in a further 80 basis points of rate cuts by the end of FY26. Lower rates will make borrowing cheaper, which should give home prices a bit of a lift. There are also prospects of larger interest rate cuts if the global economic environment were to deteriorate further amid the heightened level of uncertainty. To date, though, the expected cuts are fairly modest compared to past ratecutting cycles.
First-home buyer support
Government support for first-home buyers is set to push home prices higher. The latest initiatives include scrapping lenders mortgage insurance (LMI) for firsthome buyers and expanding the shared equity scheme. These measures will increase both the number of potential buyers and their purchasing power. With housing supply slow to respond, this is likely to contribute to stronger price growth.
Housing shortfall
The ongoing shortage of housing is expected to stick around for a while, but the gap should start to narrow as population growth slows and more new homes are completed. Rising home prices should also help make new projects more financially viable, encouraging more construction. On top of that, rezoning plans to boost housing density near public transport and easing construction costs are expected to give future development a bit of a lift. That said, even with these supports, housing completions are still likely to fall short of the targets set under the Housing Accord for FY26 as dwelling approvals, which run ahead of completions, remain at low levels.
Stretched affordability
High home prices combined with elevated borrowing costs and weak income growth have resulted in a sharp deterioration in housing affordability in recent years. This has slowed house price and rent growth, as the share of income allocated to housing remains near historical highs in most capital cities. As a result, price gains driven by further increases in the share of income allocated to housing are likely to be limited.
Economic uncertainty
Elevated levels of economic uncertainty could reduce consumer confidence, triggering a reduction in domestic activity, wages, employment and demand for housing. There have been some early signs of cracks emerging with consumer sentiment in Australia following the roller coaster of tariff announcements emanating from the United States. However, if the potential negative effects of economic uncertainty were to materialise, the effect on the property market will likely be mitigated by a range of policy measures, including lower interest rates.
Restrictions on foreign purchases
The federal government imposed a temporary ban on foreign purchases of established dwellings for at least two years. These measures are likely to have a negligible impact on the broad property market, as foreign purchases of established property accounted for less than three out of every 1,000 property transactions in FY2023. However, the signal it sends could weigh on investor confidence at the margins.
Methodology
Domain’s Forecast Report uses a range of models to forecast house and unit median prices. These include AR, ARIMA, ARIMAX and Kalman filtering techniques. The forecast profiles are also informed by assumed profiles on both rental yields and rents, with prices being equivalent to rents divided by the rental yields. The separation of prices into rental yields and rents can help better identify the impact of the housing market under different settings. For example, interest rates impact house prices mostly through their impact on yields, while population and housing construction mostly impact rents.
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Sources
All data presented in this report is sourced from Domain unless otherwise stated.
Figure 3: ASX, RBA
Figure 4: Australian Treasury Centre for Population
Figure 5: ABS, Australian Government
Figure 7: ABS
Figure 8: ABS, Domain, RBA
Figure 10: ABS, Domain