Rate hikes, affordability won’t curb house prices
Despite the threat of higher interest rates and increasing affordability pressures, real estate agents and financial professionals remain optimistic about property prices this year.
But a divergence is widening between the NSW and Victorian markets and the mid-tier markets of Queensland, Western Australia and South Australia, according to a report from data analytics firm Cotality. Decoding the 2026 reportIt was published on Wednesday.
With the Federal Reserve expected to raise borrowing costs this year, sentiment has eased since 2025, when three interest rate cuts boosted national home values by 8.6 percent.
Of more than 1,100 professionals in the real estate, banking, lending and adjacent real estate industries surveyed by Cotality, 87 percent expected home values to increase, while 44 percent expected price increases of more than five percent.
Cotality research director Tim Lawless said sentiment remained positive in Sydney, the most expensive and interest rate-sensitive city, but was more dependent on what the RBA was doing than other cities.
Shannan Whitney, director of Sydney-based property group BresicWhitney, expected prices to continue rising in the port city, although sentiment remained more cautious.
He said even the uncertain geopolitical environment had a cooling effect on purchasing appetite as buyers pushed their limits.
“Nobody has really strong feelings on either side of the transaction – buyers or sellers – about how the market is going to go,” he told AAP.
“On balance, I think this will be pretty stable and solid.”
Mr Whitney expected the lower end of the Sydney market, as is the case across the country, to continue to outpace the premium end due to affordability restrictions and the federal government’s expanded five per cent deposit guarantee scheme for first home buyers.
More than three-quarters of real estate agents reported increased activity following the expansion of the program, but sharp price increases are already affecting eligibility; Less than half of average Australian suburban values are below price caps.
Meanwhile, Cotality found that structural headwinds continue to keep property in Melbourne relatively affordable.
Higher property taxes continued to discourage investors, while weakening interstate migration also limited demand growth.
Conversely, strong population growth was expected to continue supporting growth in Queensland and WA.
“The bullish outlook in Queensland, Western Australia and South Australia largely reflects trends that have existed for several years,” Mr Lawless said.
“Strong internal migration in Queensland and WA, relatively better affordability compared to Sydney and a persistent shortage of housing supply have combined to support stronger price growth, and these factors remain largely intact.”
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