House prices to rise 7.7% in 2026 despite interest rate uncertainty

28 January 2026

House prices across the country are expected to increase by 7.7% this year, with momentum in the property market expected to continue in 2026, despite ongoing speculation about where rates are heading.

KPMG’s latest Residential Property Outlook predicts house prices in Perth are set to soar by almost 13% over the next 12 months, the highest of any capital city and far exceeding previous expectations. Brisbane and Darwin are also gearing up for much stronger than expected growth of more than 10%, while house prices in Adelaide will jump by more than 8% and Melbourne, Sydney and Hobart are expecting more moderate growth.

KPMG chief economist Dr Brendan Rynne said the unexpected strength of the market during the second half of 2025, driven by government policies and lingering inflation, has pushed house prices far higher than anticipated.

“The strong momentum in the first half of 2025 should have moderated as affordability pressures continued to spook buyers. But instead, the second half of last year accelerated growth further, especially in already overheated cities Perth and Brisbane, supported by the expanded 5% Deposit Scheme,” Dr Rynne said.

“Despite the fact there aren’t enough houses being built, buyers in these cities are prepared to pay more than the supply shortage would justify.

“As a result, at the entry level, the market will continue outperforming this year, with more young people seizing the opportunity to break the rent cycle and lock in their first home sooner, intensify competition at the affordable end and ensuring prices remain firm.”

City by city price growth forecasts for houses and units in 2026/2027

Melbourne: House prices are expected to increase by 6.8% and units by 7.3% in 2026, driven by genuine underlying demand.

“Melbourne’s market started its rebound last year driven by genuine demand, even as Victoria’s land tax regime continues to weigh on investor activity,” Dr Rynne said.

“Melbourne’s comparatively lower price base compared to other capital cities is likely to provide room for further growth and help sustain momentum over the coming years.”

Sydney: House prices in the Harbour City are set to grow at a more moderate 5.8% and units by 5.3% this year, as Sydney’s position as a major jobs hub continues to attract buyers and offset affordability challenges.

“While the 5% Deposit Scheme offers the higher price cap for Sydney of $1.5 million broadening eligibility, in practice most first-home buyers are still constrained by borrowing capacity and cannot afford the mortgage required, even at the lower end of the city’s market,” Dr Rynne said.

“As a result, Sydney’s outlook is one of balanced growth this year, underpinned by strong fundamentals, but limited by persistent supply and affordability issues.”

Brisbane: House prices in the River City are set to grow by almost 11% this year and nearly 8% for units, with the city’s market strength likely to extend beyond 2026, defying previous predictions of much more subdued price growth this year.

“More and more people are making the move to Brisbane, but as with most other cities, housing supply has not kept pace, amplifying cost pressures,” Dr Rynne said. 

“As a result, Brisbane’s growth is expected to continue for the foreseeable future.”

Adelaide: Price growth for houses is expected to grow by 8.2% and 6.6% for units, indicating strong growth in Adelaide this year, but at a softer pace in 2027.  

“Adelaide is beginning to see affordability issues emerge which may temper demand and redirect some buyers to more affordable cities such as Melbourne, but supply has also picked up which will keep growth at a more moderate pace,” Dr Rynne said.

Perth: The city is expected to be the strongest performer, with house prices expected to increase by almost 13% in 2026, the biggest jump of any capital city and defying previous expectations of much weaker growth this year.

“Perth continues to record the fastest population growth in the country and limited housing supply is keeping upward pressure on prices,” Dr Rynne said.

“Still, house prices remain on the more affordable side for first home buyers and the 5% deposit scheme is helping to drive demand.”

Darwin: The Top End is expected to see growth of 10.5% for houses and 13.4% for units next year, with the city emerging as key investment hot spot.

“Supported by a strong pipeline of infrastructure projects including the Ship Lift Facility, defence industries, mining related activities and attractive rent yields, the city is well positioned for strong growth over the next 2 years,” Dr Rynne said.

Hobart: The Tasmania capital is expected to see modest but consistent gains of 5.4% for houses and 5.1% for units next year. 

“Hobart is beginning to experience a gradual recovery, however prices still remain below their 2022 peak,” Dr Rynne said.

“Supply is increasing relatively quickly and population growth is subdued, which points to only modest growth ahead.”

Canberra: The housing market will grow by a modest 4.7% for houses and 4.9% for units next year. 

“The market is showing early signs of strengthening after a period of flat or falling prices over the past six months,” Dr Rynne said.

“Once the recovery gains traction expect steady growth from next year, supported by spillover demand from other markets such as Sydney, as buyers search for more affordable options and investors leverage additional equity gains to expand into the Nation’s Capital.”

Price forecasts for units 

Unit prices are expected to grow at similar levels to houses, with apartment values projected to grow by 7.1% in 2026. 

“Over the next two years, affordability issues are likely to maintain steady demand for units, particularly in capital cities where escalating prices have left a large portion of the population unable to purchase a detached house,” Dr Rynne said.

Rents 

Rents across the country are expected to increase by around 3.5% across 2026 and 2027, remaining above the long-run average of 3.0%.

“Australia’s tight rental market continues to being driven the structural imbalance between strong population growth over recent years and limited housing supply,” Dr Rynne said.