Bank flags slower capital-city growth through 2027, with Sydney and Melbourne most exposed
Australia’s housing market is likely to cool over the next two years as borrowing costs rise again and households remain wary, research from ANZ has suggested.
The bank expects capital-city dwelling values to increase by 2.8% in 2026 and 2.1% in 2027, pointing to a marked easing from recent momentum as demand softens.
“We expect the slowdown to become more pronounced in Sydney and Melbourne, which are forecast to underperform in 2026,” said Adam Boyton, head of Australian economics at ANZ. “Softer conditions are then expected to broaden in 2027, with Adelaide, Brisbane and Perth likely to lose momentum following an extended period of strong growth.”
ANZ said it had revised its Reserve Bank cash rate forecast since the escalation of the Middle East, adding a further 25 basis-point increase. It now expects the cash rate to peak at 4.35% in May.
Such a move would unwind the 75 basis points of reductions delivered in 2025 and, in ANZ’s view, keep policy in restrictive territory. The bank also noted a sharp recent drop in sentiment, with the ANZ-Roy Morgan Australian Consumer Confidence measure near a record low.
“The uncertain backdrop and higher rates are likely to soften Australia’s housing market in 2026, so ANZ Research now expects capital city housing prices to lift 2.8% (previously 4.8%),” Boyton (pictured right) said.
According to ANZ, Sydney and Melbourne prices are below October 2025 levels, and that top-quartile properties in both cities have fallen for five straight months. It expects the sharpest deceleration in these two markets, including modest price declines in 2026.
Elsewhere, ANZ anticipates that Brisbane, Perth, Adelaide and Darwin will also lose pace, though it expects this to show more clearly from late 2026 into early 2027. Very low listings have helped sustain price growth early in 2026, but affordability pressures, softer activity and higher interest rates are expected to slow gains as the year progresses.
Looking to 2027, the bank expects Adelaide, Brisbane and Perth to underperform, while arguing broad-based price falls remain unlikely given the market’s structural tightness. It said elevated interest rates and construction costs are likely to constrain new supply, while population growth is expected to stay solid.
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