Rising rates and growing uncertainty continues to cool housing market

4 August 2026

Australia's housing market is expected to continue to weaken through the remainder of 2026 as higher interest rates, affordability pressures and weaker investor sentiment putting downward pressure on demand, according to KPMG's latest Residential Property report released today.

KPMG forecasts national house prices will fall by 1.1% in 2026 before rebounding by 3.4% in 2027, while unit prices are expected to prove more resilient, increasing by 2.2% in 2026 and 3.7% in 2027.

The slowdown follows a sharp loss of momentum during the first half of 2026, with national house prices recording their first quarterly decline since late 2022.

Sydney and Melbourne are expected to be the weakest-performing capital cities for the remainder of this year, while Darwin is forecast to remain Australia's strongest housing market.

KPMG Chief Economist Dr Brendan Rynne said higher interest rates, cost of living pressures, housing affordability challenges and falling investor activity had materially altered the housing market outlook.

"With the conflict in the Middle East catching us all by surprise, coupled with the unexpected Budget tax changes, the housing market is now much softer than we anticipated at the start of the year," Dr Rynne said.

"Three consecutive interest rate rises have also reduced borrowing capacity, while changes to property investment taxation have weakened investor confidence.

"While demand has weakened, Australia's underlying housing issues are stronger than ever. “Australia continues to face a housing shortage. Population growth remains firm, rental vacancy rates are still exceptionally low, and housing supply is still well below demand.

"As a result, we expect the housing market to follow a V-shaped trajectory over the next two years, with a correction in 2026 followed by a gradual recovery in 2027.”

Sydney

Sydney house prices are forecast to fall 4.4% in 2026 before recovering to grow by 3.6% in 2027.

Prices for units, which remain a more affordable entry option, are expected to be broadly flat this year before growing again next year.

"Sydney's market has been particularly sensitive to rising interest rates because affordability constraints are already severe," Dr Rynne said.

"Despite the short-term decline, Sydney's role as Australia's largest employment hub and ongoing supply constraints will continue to support price growth over the medium term.

“A persistently low vacancy rates will be continuing to support rental growth and investment returns which will keep investors interested in the Sydney market.”

Melbourne

House prices are forecast to decline 5.0% in 2026 before rebounding by 3.3% in 2027, while unit prices are expected to rise 0.4% this year and 3.6% next year.

"Melbourne is expected to record the weakest house price performance among the major capitals for the remainder of this year," Dr Rynne said.

"Buyers have benefited from a relatively stronger increase in housing supply from both greenfield developments and higher-density housing.

"However, Melbourne's strong population growth and ongoing housing shortages should support a sharper recovery from 2027.

“Melbourne relatively affordability compared to the other major cities will also help support price growth in 2027.”

Brisbane

The Brisbane market is expected to see a substantial slowdown in price growth over the next 18 months, after already losing some momentum in the June quarter 2026.

"While growth will continue, the pace is expected to moderate significantly from the boom conditions experienced in recent years,” Dr Rynne said.

House prices in Brisbane are expected to rise 4.6% in 2026, while units are forecast to increase 7.3%.

"Brisbane's market remains supported by a structural housing shortage, but affordability constraints are becoming more pronounced after several years of exceptional growth.”

Adelaide

House prices are forecast to increase by 5.3% in 2026, while unit prices are expected to grow by 6.5%.

"Adelaide continues to experience undersupply, but affordability pressures are becoming more evident and will constrain future growth," Dr Rynne said.

"The city remains well positioned but is unlikely to replicate the extraordinary gains recorded over recent years."

Perth

Perth’s market is anticipated to see a significant cooling in price growth after a 20% increase in the past year.

Perth house prices are expected to rise by 6.4% for the remainder of 2026 and unit prices by 4.4%.

"Perth remains one of Australia's strongest housing markets, supported by strong population growth and limited housing supply," Dr Rynne said.

"However, affordability is becoming more of a constraint following the sharp rise in prices over recent years, which is expected to slow the pace of growth."

Darwin

Darwin is forecast to be Australia's strongest-performing capital city, with house prices rising 8.2% and unit prices increasing 8.1% for the remainder of 2026.

"Darwin continues to offer some of the strongest rental yields in the country, making it highly attractive to investors," Dr Rynne said.

"Strong rental demand, population growth and major project activity are expected to support continued outperformance over the next two years."

Hobart

House prices in Hobart are forecast to rise 4.8% for the remainder of 2026, while unit prices are expected to increase 4.2%. 

"Hobart's market is recovering gradually, but supply is increasing and population growth remains relatively subdued," Dr Rynne said.

"These factors point to modest and sustainable growth rather than another rapid upswing."

Canberra

Canberra house prices are forecast to decline 2.6% in 2026 before rebounding 3.0% in 2027. Unit prices are expected to increase 1.0% this year and 3.4% next year.

"Canberra experienced a noticeable slowdown during the first half of 2026, but the market should recover as affordability becomes increasingly attractive relative to Sydney," Dr Rynne said.

Units to outperform houses

Unit markets are expected to outperform detached housing over the next two years, supported by stronger affordability, higher rental yields and continued demand for lower-cost housing options.

"As detached housing becomes increasingly unaffordable, more Australians are turning to units as an entry point into the housing market," Dr Rynne said.

"That trend is expected to support stronger unit price growth across many capital cities."

Rents

National rental growth is expected to remain elevated at around 3.7% through the remainder of 2026, reflecting ongoing supply shortages and vacancy rates near historic lows.

"Australia's rental market remains extremely tight because population growth continues to outpace the delivery of new housing," Dr Rynne said.

"While rental growth has moderated from the peaks of recent years, affordability pressures are likely to persist until housing supply increases materially.

“Higher rents and cooling house prices, may see more renters considering jumping into home ownership, which would maintain competition at the affordable end of the market.”