Unit prices tipped to outperform houses as buyers seek affordable options
Australia’s residential property sector is expected to reach new price peaks in every capital city by the close of next year, according to a new report.
Domain’s 2026 Forecast Report indicates that after a period marked by affordability challenges and limited listings, the next stage of the market cycle will be influenced by anticipated interest rate reductions, increased household earnings, and heightened demand from first-home buyers taking advantage of the expanded First Home Guarantee Scheme.
However, Domain projects that this momentum will moderate towards the end of 2026 as additional housing stock becomes available and affordability constraints begin to limit further growth.
Sydney’s median house price is forecast to increase by 7% to $1.92 million, edging closer to the $2 million threshold, which remains unattainable for many buyers. Melbourne is set for a recovery, with median house values expected to rise by $87,000 to $1.17 million.
Canberra is projected to return to record levels, with a rise of approximately $78,000 to $1.18 million. In Brisbane, Adelaide and Perth, house price growth is predicted to slow to between 4% and 5%, while unit prices are expected to outpace houses as affordability becomes a greater concern for purchasers.
Heightened investor competition
Domain’s analysis suggests several implications for market participants in 2026. First-home buyers are likely to drive demand, with the expanded First Home Guarantee Scheme potentially pushing prices up by as much as 6.6% in its first year.
Increased competition with investors is expected to inject significant activity into the market, comparable to the impact of multiple Reserve Bank rate cuts. Investors may see robust returns and strong early-year capital gains, though these are expected to taper as more properties become available and competition intensifies later in the year.
Upgraders, particularly in Sydney and Melbourne, will encounter higher prices and increased competition, while downsizers could benefit from elevated sale prices and a broader range of suitable properties.
The unit segment, in particular, is forecast to perform strongly, maintaining competitive conditions at the more affordable end of the market.
Renters are expected to continue facing challenges, with rents forecast to rise by 3% across the combined capitals and as much as 4% in Brisbane, Adelaide and Perth, as demand continues to exceed supply.
“Australia’s housing market is set for another strong year, with demand still high and buyers continuing to chase affordability, particularly in the unit market, which is expected to outperform in several cities,” said Nicola Powell (pictured right), chief of research and economics at Domain. “There are encouraging signs on the horizon, with new housing supply starting to come to market as building activity picks up.
“While prices and rents will remain elevated, slower population growth, rising incomes and a cautious RBA should help the market move toward more balanced conditions by the end of 2026.”
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