Australia vs the world: how local property stacks up in a volatile global market

Much has been made of souring Australian property prices and a lack of affordability.

In a month where Perth and Brisbane prices rocketed 2.5 and 1.8 per cent respectively and Sydney and Melbourne went backwards, the national picture became somewhat muddied.

But that lack of clarity is nothing compared to the events that have unfolded globally.

The war in the Middle East prompted the International Monetary Fund (IMF) to publish three scenarios that each get progressively worse depending on how long Middle East energy supplies are disrupted.

The IMF warned a protracted blockage of the Strait of Hormuz IMF could slow global growth to 2 per cent in 2026 and 2.2 per cent 2027, while inflation “would exceed 6 per cent”.

Yet you have Wall Street setting new stock market record highs but at the same time Australians are being warned about the risk of recession.

Westpac chief executive Anthony Miller said Australia needed to acknowledge “circumstances have changed so much that a recession is a chance”. He was specifically referring to increasing inflation, rising interest rates and escalating tension in the Middle East.

Geopolitical uncertainty has an immediate and telling impact on Australia’s property market, through inflation, cost of living pressures and interest rates.

For now, the pace of property price growth has slowed in the biggest cities but has yet to materially impact the mid-sized capitals.

To gain a fuller understanding of the factors influencing Australia’s property market, it is necessary to take off the blinkers and see how the rest of the world is faring when faced with the same global headwinds.

International interest rate, property trends

The RBA has already delivered two successive interest rate rises this year and most observers expect more could come. The official cash rate is now 4.10 per cent.

It’s a different picture in Europe, United States and elsewhere. Australia’s rate rises that were implemented well before the Iran War erupted went against the grain globally.

Despite the recent turmoil, major central banks like the Federal Reserve and the European Central Bank (ECB) had begun cutting rates in late 2024 and 2025, with rates sitting below their 2023 peaks but showing signs of instability.

The IMF’s lowered forecasts suggest downward pressure on rates. The war in the Middle East has become a significant driver, with fears that a sustained spike in oil prices will fuel inflation and force central banks to pause or reverse planned rate cuts.

S&P Global ratings forecast that European house prices will increase by more than 4 per cent in 2026, with some markets seeing much higher growth. Growth is highly uneven, however, with southern European countries, particularly Spain, Portugal, and Croatia, seeing higher growth driven by strong international demand and tourist activity, while France and Finland can expect property prices to slide.

In early 2026, U.S. property prices are experiencing a sharp slowdown in growth rather than a national crash, with projected gains of 0 to 3 per cent. While prices are generally rising, regional differences are widening, with declining prices in parts of Florida, Texas, and Washington, D.C

The Bank of Japan (BOJ) has been actively raising its key policy rate, reaching 0.75 per cent as of December 2025, marking a significant departure from years of near-zero or negative rates.

Property prices in Japan are generally rising in 2026, particularly for residential units in metropolitan areas like Tokyo, where prices remain at record highs. Residential prices are expected to rise, with some forecasts suggesting nationwide increases of 3 to 4 per cent in the Japanese capital. Tokyo new condos are running much hotter at 14 per cent year-on-year.

The Bank of Canada (BoC) has paused its rate-cutting cycle and is holding its rate steady at 2.25 per cent. While nine cuts occurred between June 2024 and October 2025, rates are now holding due to economic uncertainty, with risks of future rate hikes if inflation rises.

Reduced immigration targets, a fragile labour market, and high mortgage renewal payments are limiting buyer power in Canada. Canadian property prices are showing a mixed, regional outlook in 2026, generally stabilizing or seeing modest declines nationally. National home prices are expected to stabilise after previous volatility, with some forecasts showing a slight 0.7 per cent decrease.

Across the ditch, New Zealand interest rates are transitioning from a cutting cycle towards potential increases. While mortgage rates plummeted between 2024 and early 2026, the Reserve Bank of New Zealand (RBNZ) has reached the bottom of its easing cycle, with major banks forecasting that the official cash rate will rise later in 2026 as the economy recovers.

New Zealand property prices are generally expected to be flat or fall slightly in 2026, shifting towards a balanced market. Major banks have downgraded their forecasts to declines of 1 to 2 per cent due to rising mortgage rates, low buyer confidence, and high supply.

Canada offers a cautionary property parallel

Australia is not alone in grappling with the twin pressures of population growth and housing affordability. Canada is facing a strikingly similar challenge, where elevated migration levels have collided with constrained housing supply, driving sharp increases in both rents and property prices.

Recent reporting highlights how rapid population growth has outpaced construction, placing sustained pressure on housing availability in major cities.

While policymakers had previously leaned on migration to support economic growth and address labour shortages, the downstream impact on housing has become increasingly difficult to ignore.

In response, Canadian authorities have begun to recalibrate migration settings, acknowledging that housing capacity must better align with population inflows.

The shift underscores a broader lesson: without a commensurate increase in housing supply, strong population growth can quickly exacerbate affordability issues, regardless of broader economic conditions.

For Australia, the comparison is instructive. Like Canada, it remains heavily reliant on migration to underpin economic expansion, yet continues to fall short on housing delivery targets.

The risk is that, without meaningful gains in supply, the same structural pressures seen overseas could become further entrenched domestically.

In that context, interest rates are only one part of the equation. The deeper challenge lies in balancing population growth with the pace of new housing, a dynamic that is increasingly shaping property markets around the world.

Global property market trend

Australia’s property market may have been booming but that has not been the case for the property market on a global scale.

PwC’s newly released 2026 Emerging Trends in Real Estate report noted that “there is a sense that the asset class is coming off the lows in terms of valuations, with liquidity returning to the United States, Europe and Asia Pacific.”

“The real estate industry is buoyed by improving fundamentals and the increasing availability of capital as a new cycle gathers momentum, and yet the prevailing geopolitical uncertainty still presents investors with a major test of nerve.”

With stock markets riding high and fears of overvaluation creeping in, the report said many investors around the world were looking for more tangible assets.

“Positive momentum is also attributed to the rotation out of technology stocks into the real economy and more traditional asset classes.”

For 2026, greater stability around inflation and interest rates is certainly supporting many real estate markets.

But that has to be balanced against volatile geopolitics and challenging economic conditions in the era of deglobalisation.

The PwC report noted that last year’s Global Emerging Trends reflected industry concerns over Ukraine, Israel and Gaza, and Liberation Day tariffs, all of which helped keep investment volumes “muted” for much of 2025.

“Tariffs remain in one form or another, and the geopolitical uncertainty has now spread across the Middle East and extended to Venezuela and Greenland.

“One year on, the industry believes there is a real risk that the effect on investment could be much the same in 2026.

“Even if the volatility is unavoidable, it still requires a response.”

As one US-based interviewee in the report put it: “Investors don’t have the luxury of sitting on the sideline, there are liabilities they have to match.”