Property prices across all Australian capital cities are forecast to continue rising in the 2025–26 financial year, according to new data from Domain. But the pace of growth is expected to slow as affordability pressures begin to bite.
According to Domain’s Price Forecast Report, house prices in Sydney are forecast to rise by 7% in FY26, pushing the median to $1.83 million – about $112,000 higher than the current level.
Melbourne’s market is expected to continue its current rebound, with a 6% rise to a record-high median house price of $1.11 million.
In the mid-sized capitals, price growth is anticipated to continue but at a much slower pace than the last two years. House prices are expected to change as follows:
Unit prices are also set to increase, with national forecasts of 3% to 6% growth. Demand for more affordable apartments is expected to strengthen as many buyers are priced out of the detached housing market. As a result of this increased demand, the unit markets in all capitals except Melbourne and Canberra are expected to reach record highs in FY26.
At the beginning of this rate-cutting cycle, Cotality used historic trends to model possible changes in the property market. It found that for every one percentage point cut of the cash rate, national dwelling values would increase an average of 6.1%, with some areas growing more than that.
This is because lower interest rates improve buyers’ borrowing power, spurring demand. After two cuts so far in 2025, borrowing capacity has already improved, increasing competition in the market and putting upward pressure on property prices.
Another key driver of expected growth is the ongoing shortage of housing stock. Population growth, particularly from migration, is continuing to outpace new housing supply in many cities. In New South Wales, for example, the population grew 1.3% in 2024 – an additional 108,100 people, according ot the Australian Bureau of Statistics (ABS).
But, ABS data also shows that just 45,552 dwelling units were completed in 2024. And, as the graph below shows, this number has trended downwards over the last four years, further exacerbating the lack of housing.
The pipeline of new housing looks marginally better. ABS data shows that between January and May 2025, 21,356 dwelling units were approved for construction in NSW compared to 18,197 for the same five-month period in 2024.
Moderating construction costs are improving the feasibility of projects and several state governments have pledged renewed attention to the housing sector in an effort to reduce bottlenecks at the approval stage.
Supply in the existing dwelling market has improved slightly over the last year, which will help support increased demand. According to SQM Research, total listings were up 1.0% nationally between June 2024 and June 2025. While still below historical norms, more stock on the market is welcome news for the influx of buyers.
While lower interest rates and supply shortages are set to put upward pressure on property prices, affordability constraints remain a major headwind, particularly for first home buyers and lower-income households.
According to the Real Estate Institute of Australia, housing affordability has improved slightly as interest rates have come down, but the burden remains. As of March 2025, the proportion of median family income needed to meet average loan repayments was still high at 48.0% nationally. In NSW, where home prices are highest, that figure jumps to 56.8%.
This level of mortgage stress is prompting many buyers to adjust their expectations. Demand is increasingly shifting towards more affordable housing types, including apartments, townhouses and homes in outer-ring suburbs.
For first-home buyers, the biggest barrier remains saving a sufficient deposit. A recent Finder survey revealed that many are stretching themselves to get into the market before property prices climb further. Around one in seven Australians who bought their first home in the past 12 months now have no savings left, while a third have less than $10,000 remaining.
Despite these pressures, there are some early signs of improvement. Inflation is gradually easing, with annual trimmed mean inflation rising 2.4% in May, down from 2.8% in April, according to the ABS.
This is taking pressure off household budgets and giving the Reserve Bank of Australia more room to cut rates. As the cost of living stabilises and borrowing becomes more affordable, buyer confidence is expected to lift.
In the meantime, government support programs are continuing to play a key role in helping buyers overcome deposit hurdles. The Home Guarantee Scheme released 50,000 places for the new financial year at the beginning of July and various state-run schemes and grants continue to assist, particularly first home buyers into the market.
While affordability will likely keep a lid on runaway property price growth, it doesn’t appear to be enough to stop the market’s upward trajectory altogether. Instead, we’re likely to see a more moderate market, where price movements vary based on location, property type and buyer type.
For those looking to buy, now could be the time to get financially prepared. With competition still strong and borrowing capacity improving as rates ease, having your finances in order is essential. An experienced mortgage broker can help you understand your budget, compare loan options and navigate government support schemes to improve your chances of securing a home.
Thinking about buying property in the current market? Speak to the expert team at Shore Financial. We can help you understand your borrowing power, compare the right loan options and get financially prepared to take advantage of the opportunities ahead. Call us on 1300 416 700, email us on info@shorefinancial.com.au or fill in this online form.
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