Will the latest property boom cool down in 2026?

Is 2026 the year that property prices finally recede or at least slow down?

Despite all the issues around the lack of new housing supply, exacerbated by building approval declines and continued population growth, at least one leading economic commentator has bravely tipped the property market to moderate in 2026.

While not going so far as to predict actual declines, Dr Shane Oliver, Head of Investment Strategy and Chief Economist, AMP, said the heat should come out of the real estate market next year.

“The lagged impact of rate cuts, the expansion of the 5 per cent low deposit scheme and the startup of the Help to Buy scheme along with the ongoing housing shortage are expected to drive further gains in home prices next year,” he said.

“The gains are, however, likely to slow in 2026 as a result of poor affordability, the less favourable outlook for interest rates with the risk of a rate hike, and APRA moving to ramp up macro prudential controls and likely to do more.”

After around 8.5 per cent growth this year, Dr Oliver said he now expected property price growth to slow to around 5 to 7 per cent in 2026.

The two-paced real estate market has seen a divide open up between the largest and mid-sized capitals, while the very slight easing in the monthly growth rate (down to 1.0 per cent in November, from 1.1 per cent the previous month) may offer some support for Dr Oliver’s prediction.

The underperformance of Sydney and Melbourne would ultimately impact the national property price growth rate.

“Poor affordability is likely biting in Sydney along with less negative listings and stronger supply and the malaise around Victoria is likely impacting Melbourne.

“The upswing in property prices in Sydney and Melbourne this year is consistent with an upswing in auction clearance rates in both cities this year (but) these have since cooled from their August high, which mainly looks seasonal but could be a sign of things to come as affordability bites.”

For the market to slow appreciably in 2026, it would need a few factors to fall into place.

It would also need to move the hands on the property clock published by Herron Todd White. That lopsided measure of where property markets are heading is overwhelmingly weighted towards regional and capital city markets being on an upwards trajectory.

Of the 50 housing markets assessed, only three were deemed to be ‘starting to decline’ and one as ‘approaching bottom of market’, all of which were smaller regional centres.

But Dr Oliver cites finance factors as playing a bigger role in dictating market momentum in 2026.

“The pace of gains is likely to slow from that seen this year as the RBA now looks to be at or very close the bottom of the interest rate cycle, with talk that the next move in rates will be up, APRA is starting to ramp up controls to slow risky or speculative lending and affordability is now worse than ever.

“Given the recent run of data showing rising inflation, still low unemployment and possibly strengthening private sector economic growth, and chatter that rates may have bottomed with a possible rate hike later next year, may act as a dampener on buyer demand.

“APRA is now starting to ramp up regulatory controls to cool riskier forms of property lending … and it won’t have much impact initially, except maybe for small lenders, but it’s clearly a pre-emptive move designed to cool investor activity before it gets too hot. 

“If it (capping the proportion of each bank’s housing lending that goes to borrowers with a debt-to-income ratio of six times or more at 20 per cent) doesn’t work, APRA is likely to do more like putting a cap on investor credit growth like the 10 per cent year-on-year cap it applied in late 2014.”

Another factor that could weigh on property prices over the coming year is expanding gulf between home prices and income.

That disparity is the highest it been since records began 100 years ago.

Population pressures continue to weigh on the market too, but Dr Oliver pointed out that this too was likely to ease in 2026.

“Population growth has already slowed from a peak of 662,000 over the year to September 2023 to 423,000 over the year to March with the Government’s immigration forecasts implying a fall to around 365,000 in 2025-26.

“With FOMO running hot in the boom time cities of Brisbane, Perth and Adelaide they are likely to remain the strongest over the next six months but as their relative affordability continues to deteriorate with home price to income ratios in each city now being well above that in Melbourne some sort of rotation back to the laggards including Melbourne and possibly Sydney is likely at some point later next year,” he said.

Prestige property market

The latest boom in property prices has been largely driven by the affordable and below-median segments of the market.

But while the above-median market has been strong but less spectacular than the lower end, certain prestige prime property markets have been setting record prices and head into 2026 with demand still strong.

Perron King, Director of Prestige Residential Valuations, Herron Todd White, said Sydney continues to dominate Australia’s trophy home landscape and remains one of the world’s least affordable major cities.

“Recent deals reinforce that point; large sales have commanded record-setting prices, with the top-end harbourside suburbs of Point Piper, Bellevue Hill and Vaucluse pushing into the tens of millions.

“Throughout 2025, Sydney’s luxury segment has seen both off-market and high-profile auction sales that continue to set new benchmarks.

“For instance, Sydney accounted for 17 of the top 20 residential sales this year, amounting to $1.1 billion in aggregate.”

Melbourne has taken a back seat to Sydney’s prestige market but still has its pockets of luxury that are relatively strong.

“Melbourne’s top end remains fairly competitive in specific suburbs, particularly the crown jewel of Melbourne prestige, Toorak.

“With the spring selling period now in full bloom, we have seen several high-end properties enter the market, ranging from $20 million to $50 million, revealing a confidence that robust transactions will occur at the top end,” Mr King said.

“Melbourne’s prestige segment faces some headwinds that are not as pronounced in Sydney.

“These include state-level tax policy pressures and a more cautious investor sentiment.

“Notwithstanding, for premium properties in A-grade suburbs such as Hawthorn, Canterbury, Armadale, and Brighton, with prestige amenities including views, contemporary design by respected architects and designers, access to elite schools, or water views and beach access, demand remains relatively strong.

“Melbourne’s luxury market is expected to continue modest growth from now through into 2026, particularly for well-located, high-quality stock.”