Economists look at factors that shaped the property market in 2025 to chart path in 2026
Interest rates and inflation are set to remain central to Australia’s housing outlook in 2026, with recent rate cuts supporting activity but elevated price growth complicating the Reserve Bank of Australia’s (RBA) path from here.
REA Group executive manager of economics Angus Moore (pictured top left) said three rate reductions over 2025 had been a major catalyst for higher transaction volumes, easing mortgage repayments from the cyclical peak reached in 2024.
“That said, interest rates are still obviously a lot higher than they were a few years ago, and that's still making housing affordability very challenging,” he added.
Moore noted that lower borrowing costs have been most evident in the country’s two largest markets.
“We've seen some cuts has been supporting home price growth notably in Sydney and Melbourne,” he said. “Both cities have been - particularly in 2024 - pretty sluggish; but this year, both cities have been growing consistently, and the fact that we've seen interest rate cuts is a big part of that.”
The combination of higher rates than pre‑pandemic levels and resurgent prices in key capitals is keeping serviceability and deposit hurdles in focus, even as headline funding costs have moved off their highs.
Inflation still above RBA target
The latest figures from the Australian Bureau of Statistics show the Consumer Price Index rose 3.8% in the 12 months to October 2025, up from 3.6% over the year to September 2025, leaving inflation above the RBA’s 2–3% target band.
AMP head of investment strategy and chief economist Shane Oliver (pictured top right) said the inflation print has shifted expectations for further monetary easing.
“We started off the year with a degree of optimism that interest rates might come down, and now the expectation has been dashed to some degree,” Oliver said. “That's sort of acting as a bit of a constraint on the residential property market, and possibly also the commercial property markets.”
Moore said that with underlying inflation running above the RBA’s comfort zone, the central bank is likely to be cautious about additional cuts.
Government deposit support offsets some headwinds
According to Oliver, federal policy support via the expanded Home Guarantee Scheme is providing some counterweight to the drag from sticky inflation and fewer rate cuts than previously anticipated. Under the scheme, eligible first home buyers can access the market with deposits as low as 5%.
“It obviously brings forward demand from first-home buyers… It substantially reduces the amount of time that people need to save a deposit,” he added. “So therefore, it can have the effect of bringing forward demand, particularly at a time when the residential rental property market is still quite tight.
“It obviously takes time between applying for the program, finding a home, and that showing up in activity and home prices so it's probably a bit too early to have a really firm read on it.“
Owner-occupier borrowing edges higher
Recent lending figures indicate a modest uplift in new owner-occupier activity. In the September quarter, 83,846 new owner-occupier loans were approved, a 2% increase (1,606 loans) on the previous quarter and 1.7% higher over the year.
The total value of these loans reached $58.2 billion for the quarter, up 4.7% ($2.6 billion). Average loan sizes also rose, with the typical owner‑occupier mortgage increasing by $15,873 to $693,801.
Growth was uneven across jurisdictions. New South Wales recorded a 4.9% rise in new owner‑occupier loans, Victoria 2.4%, and the Australian Capital Territory 6.7%, pointing to stronger demand in those markets.
Investor demand remains strong
Investor lending has been a key feature of the current cycle. Over the September quarter, 57,624 new investment loans were approved, up 13.6% (6,906 loans) on the previous quarter and 12.3% higher over the year.
The value of new investment lending totalled $39.8 billion for the quarter, an increase of 17.6% ($6 billion). The average size of an investment loan rose by $11,686 to $685,634 over the period.
Moore stressed investors have played a significant role in supporting housing turnover in recent years and remain active in 2025. “What that means is the share of loans going to investors at the moment, is close to, or at record highs in some of the states,” Moore said.
“In South Australia and the Northern Territory it’s at a record high, in Western Australia and Queensland, it's a little off, but not by much. New South Wales is at quite high levels, and the highest since 2017.”
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