Two-speed property market widens as mid-sized capitals surge ahead

A huge gulf has opened up between the property markets of Sydney and Melbourne and the three mid-sized capitals.

Perth, Brisbane and Adelaide have firmly moved back into unabashed boom territory while Sydney and Melbourne are barely in growth territory.

It re-establishes a capital growth hierarchy that has been entrenched for the past few years but which had in the latter months of 2025 showed signs of unwinding.

The national change in dwelling values, according to the latest monthly Cotality data released Monday (2 February), shows prices inched up 0.1 per cent to 0.8 per cent, or a median value of $912,465.

Australia’s two biggest real estate markets clawed their way back into positive territory in January but only just.

Melbourne property prices remain 0.7 per cent below their March 2022 peak, while Sydney is 0.1 per cent below its November 2025 high point.

The Perth property juggernaut continues see prices rise at a rapid rate.

Brisbane’s monthly gain was almost as strong but has slowed from 2.0 per cent in October last year to 1.6 per cent in January. Adelaide’s monthly increase dropped back to a still robust 1.2 per cent from a 1.8 per cent rise in December.

Tim Lawless, Cotality’s Research Director, said low listings continue to drive prices higher.

“The ongoing capital gains reflect persistently low inventory in the face of above average housing demand, however, we are likely to see demand side pressures gradually ease in 2026.

“Affordability and serviceability constraints are likely to naturally dampen demand, but also renewed cost of living pressures and a strong chance that interest rates will rise. There is also slowing population growth to consider.”

Cotality estimates the number of homes advertised for sale was 19 per cent below levels at the same time last year, and 25 per cent below the five-year average for this time of year. At the same time, the rolling quarterly number of home sales was estimated to be 1 per cent higher than a year ago and only 3 per cent below the five-year average.

The real engine room of national property price gains remains the more affordable end of the market.

Across the combined capitals, lower quartile house values were up 1.3 per cent in January compared with a 0.3 per cent rise across the upper quartile.

“This trend of stronger growth conditions at lower price points is supported by intense competition for more affordable houses,” Mr Lawless said.

“This is where first home buyers, investors and, progressively, mainstream demand is most concentrated.”

Regional markets have delivered a stronger growth outcome, with the combined regionals index up 1.0 per cent in January compared with a 0.7 per cent rise across the combined capitals.

Data also released Monday by PropTrack recorded a more modest monthly gain of just 0.2 per cent nationally but also reinforced the reality that the country has a two-speed property market.

Angus Moore, Senior Economist, REA Group, said ample choice for buyers in Sydney and Melbourne throughout spring has likely contributed to their softer price growth.

“January is a relatively quiet month for housing markets, with lighter sales volumes, which makes it harder to assess the momentum in home prices.

“While conditions were softer in Sydney and Melbourne in recent months, home prices are still likely to head to new highs in 2026, but at a slower pace of growth than in 2025.

“Price growth in 2025 was supported by three rate cuts, but a rate rise at the Reserve Bank’s February meeting is now looking likely, with inflation coming in stronger than expected in the second half of 2025.

“While the possibility of further hikes may weigh on the market, unemployment remains very low, which will support demand. At the same time, new housing supply remains limited, supporting home prices,” Mr Moore said.

Perth market powers onwards and upwards

If any further signs were needed that the Perth property market just refuses to slow, a look at the volume of suburbs that are the latest to join the million-dollar club reinforces its strength.

There were 32 suburbs that joined Perth’s that elite club in 2025, taking the total number of suburbs with a median house sale price of $1 million or more to 126.

Suzanne Brown, President, REIWA, pointed out just how unusual that prolific level of new members in entering the club is.

“Typically, we only see a handful of new entrants to the million-dollar club each year, however, the Perth property market recorded another 12 months of very strong price growth, which saw the median house sale price for Greater Perth rise 13.3 per cent in 2025,” she said.

“If Perth property prices increase as expected over 2026, we could easily see the million-dollar club reach 150 suburbs by the end of the year.”

Among the suburbs to have hit the million-dollar median are some that might have been considered less fancied in years gone by but have now become highly prized places to buy a home.

Wattleup, Canning Vale, Jandakot, Darch, Hilton and Orange Grove are among the new entrants.

That ongoing price growth seems assured and immediate, according to Julie Kelley, Global Sales and Marketing Manager, aussieproperty.com.

“In February, once the school holidays no longer occupy parents’ schedules and Christmas holidays are a memory, expect the market to explode with a fresh wave of listings and buyers.

“Despite the price gains, Perth is still relatively affordable and government incentives and the Bank of Mum and Dad are playing a big part in keeping the more affordable end of the market – the liveliest segment – bubbling along.

“Blue chip suburbs, inner city and city fringe areas, coastal and river side locations, along with established markets with strong amenities, will also enjoy a buoyant 2026.”

Is Sydney’s run over?

Sydney’s eye-watering property prices, with a median dwelling value more than $200,000 higher than second-placed Brisbane’s, may have hit an affordability ceiling – for now.

A newly released DWS Research publication, Sydney Residential – Unlocking the West, argues that Western Sydney is the engine of Sydney’s growth, absorbing the majority of new residents and driving demand for housing and infrastructure.

The DWS Real Estate Research team estimate that Metropolitan Sydney requires an additional 140,000 dwellings by mid-2029 to account for ‘excess demand’ in the market and future growth in population.

“Local government areas (LGA’s) including The Hills, Liverpool, Blacktown and Parramatta have the largest supply requirements over the next five years, which are forecast to house around half of Metropolitan Sydney’s growth in population,” the report noted.

“Smaller LGA’s such as Lane Cove, Strathfield and Woollahra are running at significant supply deficits with implied demand more than 10x the annual dwelling approval rate.

“The geographical constraints of the Sydney market create challenges for planning, with the ocean to the east, mountains to the west and bordered by national parks.

“The inner ring suburbs around the Central Business District (CBD) are largely built out, requiring increased densification, while transport and infrastructure investment is required to support expansion to the west.

“The state and local governments have made efforts to improve the delivery of housing supply including the Housing Delivery Authority (HDA), the State Significant Development (SSD) pathway and Transport-Orientated-Development (TOD) re-zonings, however lengthy planning processes, higher construction costs and labour constraints continue to be a major barrier.”

Will Melbourne reverse underperformance?

Melbourne’s property market experienced a period of underperformance and slower recovery compared to other Australian capitals primarily due to the lasting economic impacts of the COVID-19 lockdowns, increased state tax burdens on investors, and a subsequent oversupply in certain market segments.

If it is to move back into a significant growth phase, Melbourne’s current status as the most affordable major capital city relative to income could be what attracts buyers and investors and helps to drive any rebound.

Property price rises are by no means positive if you aren’t the owner of more than one, and the city has delivered a commendable level of supply that has helped Victorians get on the property ladder.

But even here there are supply and listing pressures that drive an uptick in prices in 2026 and beyond.

KPMG certainly think that’s the case.

It this week released forecasts house prices are expected to increase by 6.8 per cent and units by 7.3 per cent in 2026, driven by genuine underlying demand.

KPMG chief economist Dr Brendan Rynne said that nationally 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.

This was the case in Melbourne, he said.

“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.”