An economist's verdict on the 2026 property market forecast

I’ve been following the Australian housing market for years, and I typically approach forecasts with scepticism because most of them (including my own) are inevitably wrong.

Domain’s Forecast Report for 2026 has property prices continuing to climb over the year. It’s seemingly inevitable that housing prices will rise over the coming year and housing affordability will deteriorate. If anything, I think the Domain forecasts could be a little conservative in some cities.

As always, it’s unforeseen circumstances that can greatly change the market’s trajectory, and this is what makes forecasting prices over the next 12 months so challenging.

There have been many shifts in interest rate expectations and predictions among interest rate experts over the past 12 months. At this time last year, interest rates were expected to be slightly higher than they are today and then fall slightly lower in 2026. By the middle of this year, that had changed again; the cash rate was expected to be around 25 basis points lower than it is today, then falling a little further in 2026.

Fast forward to today, the cash rate sits at 3.6 per cent following three 25-basis-point cuts in 2025. And now? No further cuts are anticipated.

The government is often a wildcard that can throw off any forecasts. Twelve months ago, we had no idea that the Home Guarantee Scheme would be turned into an uncapped scheme, no longer means-tested except for the purchase price. We also didn’t know that the federal government, via the Help-to-Buy Scheme, would be offering 2 per cent deposits to eligible purchasers (although this scheme is yet to commence).

Each of these outcomes has contributed to shifts in the 2025 market we could not have anticipated. Moreover, they will continue to influence market dynamics in 2026.

We’re often too focused on economic levers, such as the unemployment rate and inflation, when monetary and fiscal levers, such as interest rate decisions and government policy changes, often have the biggest impact on housing market outcomes.

As interest rates have fallen through 2025, demand for housing has increased, and this has resulted in an acceleration in prices throughout the year.

Domain’s forecast reflects this, projecting combined capital city median house prices to jump 9 per cent by the end of 2025, with units rising 7 per cent. For 2026, they anticipate further increases of 6 per cent for houses and 5 per cent for units.

What gives me pause is their expectation that house price growth will be slower next year than this year in most capital cities, and unit growth will generally follow suit.

The central thesis of the forecast is that price growth will be stronger over the first half of 2026 and then slow over the second half.

Furthermore, the fact that further cuts are now in doubt could act as a bit of a handbrake on home price growth in 2026. The psychological impact of interest rate stability, or even a perceived end to downward revisions, cannot be overstated.

But the introduction of generous assistance for first-home buyers is clearly impacting on demand for housing and pushing prices higher. This stimulus is likely to persist for some time and may increase if and when the federal government’s Help-to-Buy Scheme goes live.

While the focus of these schemes is first-home buyers, what is often forgotten (or not addressed) is the impact they have on everyone else in the property market.

You may not be a first-home buyer, but you may be feeling the squeeze of this scheme without even realising it.

This is because people who sell to first-home buyers then upgrade to more expensive properties, enabling the owners who have sold to these upgraders to upgrade themselves … and the cycle continues. This upgrading chain fuels housing demand across the entire market and pushes prices higher across every segment – not just across the first-home buyer price point.

This upgrading chain is challenging for would-be purchasers right now because overall housing listing levels are low, despite having risen somewhat in spring.

It’s also challenging because buying and selling at the same time can be difficult, meaning that buyers may have to transition through the rental market. With rental vacancy rates so low, finding a rental for many would-be upgraders may be very hard or impossible in some circumstances.

While governments view schemes that first-home buyers as assisting and impacting on them alone, they can have serious knock-on effects for the broader market. With a low supply of stock for sale and tight rental markets, these knock-on effects in the current market are significant.

Cameron Kusher is the former director of economic research at REA Group and head of research for Australia for Cotality and is now a director of Kusher Consulting.