Sydney housing market outlook for 2026

Sydney dwelling values are expected to continue rising through 2026, though at a slower and less uniform pace than the previous year. Forecasts point to ongoing price growth driven by structural undersupply, population growth and first-home buyer incentives, offset by affordability constraints, higher unemployment risks and limited scope for further borrowing capacity expansion.Forecasts diverge on pace, not direction

According to PropTrack, Sydney dwelling prices are forecast to rise 5–7 per cent over 2026, following growth of about 7 per cent in 2025. Based on a current median dwelling value of approximately $1.23 million, this implies an increase of at least $62,000, pushing the median above $1.30 million by late 2026.

PropTrack notes that price growth during 2025 was concentrated in a short mid-year window following interest rate cuts announced in May and August, alongside the expansion of the First Home Guarantee Scheme in October. Detached houses recorded the strongest performance, with freestanding house values rising by roughly $120,000 over the year. Market conditions cooled during spring after higher-than-expected inflation data in November reduced expectations of near-term rate cuts.

Several major banks now anticipate tighter monetary settings in 2026. Commonwealth Bank has forecast a rate increase in February, while NAB expects hikes in February and May. ANZ and Westpac project an extended pause. PropTrack states that stable or rising rates limit borrowing capacity growth and reinforce affordability as a key constraint, with demand gravitating toward more affordable middle- and outer-ring suburbs.

Auction market sentiment has shifted since late 2025. Buyers now face higher stock levels and reduced urgency compared with earlier in the year. Agents report weaker conditions above $2 million, while price points under $1.5 million remain more active due to eligibility for first-home buyer support.

Forecasts diverge on pace, not direction

While PropTrack anticipates moderate growth, Domain projects stronger headline outcomes, particularly for houses. Domain forecasts Sydney’s median house price reaching approximately $1.9 million by the end of 2026, representing annual growth of about 7 per cent. Under this scenario, Sydney house prices would rise by roughly $173,000 over the year.

Domain expects price growth across capital cities to accelerate during the first half of 2026 before easing later in the year. The forecast reflects the combined impact of earlier cash-rate cuts, income growth, limited housing supply and the expanded First Home Guarantee. Domain’s modelling, drawing on analysis by Lateral Economics, estimates the scheme could lift prices by 3.5 to 6.6 per cent during its first year of operation.

Under the expanded guarantee, first-home buyers can purchase with a 5 per cent deposit, without lenders’ mortgage insurance, following the removal of income caps and higher price thresholds. Domain estimates the policy reduces deposit saving times in Sydney to about three years, compared with roughly ten years previously.

Affordability pressures remain extreme

Despite policy support, affordability remains Sydney’s defining constraint. Domain data shows mortgage repayments consume about 72 per cent of the average two-person household income for a median-priced Sydney house purchased with a 20 per cent deposit, up from 47.8 per cent in 2019. The Reserve Bank classifies mortgage stress above 30 per cent of income as a high repayment burden.

Comparable figures sit at 51.5 per cent in Adelaide, 50.9 per cent in Melbourne, 49.5 per cent in Brisbane, 39.5 per cent in Perth, and 28.6 per cent in Canberra. Domain describes Sydney as the most affordability-constrained housing market nationally, driven by first-home buyer participation supported by family assistance and accumulated equity.

Units gain relevance across several capitals

High house prices are shifting demand toward apartments, particularly outside Sydney. Domain forecasts unit prices outperforming houses in Brisbane, Adelaide and Perth. Brisbane unit values are projected to rise 13 per cent over the 2025–26 financial year, reaching about $789,764 by late 2026. Adelaide and Perth units are forecast to rise 11 per cent, lifting medians to $681,423 and $612,680, respectively.

Sydney unit prices are forecast to rise 7 per cent, reaching roughly $891,972, while Melbourne units are projected to rise 6 per cent to around $626,869. Canberra units are forecast to grow 2 per cent over the same period.

Supply constraints underpin long-term price levels

Urban economists continue to highlight chronic housing undersupply as the core driver of Sydney’s price structure. KPMG analysis points to limited new housing delivery over the past two decades as a key contributor to current price levels. In contrast, Melbourne’s stronger delivery of higher-density and more affordable housing is expected to support population growth and contribute to price recovery, with Melbourne’s median house price forecast to reach about $1.18 million by the end of 2026.

Nationally, Domain forecasts all capital city median house prices exceeding $1 million by late 2026. Combined capital city house prices are expected to rise by approximately $102,500 to $1.3 million, while unit prices are forecast to rise by about $52,500 to $759,112.

Rental growth continues alongside price rises

Rental markets are expected to remain tight. Domain forecasts Sydney house rents rising 4 per cent and unit rents 5 per cent during 2026. Brisbane and Adelaide are projected to see rental growth of about 4–5 per cent, while Melbourne rents are forecast to rise more modestly at 2–3 per cent.

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