Property values dip in December amid interest rate rise fears
House values in Sydney and Melbourne fell in December amid signs that increasingly unaffordable homes and the prospect of a new year interest rate rise have hit the country’s two biggest property markets.
Figures compiled by property data company Cotality show home values fell 0.3 per cent in Sydney and 0.1 per cent in Melbourne last month. For the first time since January last year, the value of two cities fell.
Sydney’s median home value is still almost $1.6 million despite last month’s easing, while in Melbourne the figure is $981,165.
While the two largest markets eased, values rose in all other capitals; this was accompanied by a 2.1 per cent increase in Darwin, where the median house value is now $697,251. Values rose 1.9 per cent in Perth ($983,068) and Adelaide ($960,051) and 1.5 per cent in Brisbane ($1,131,329).
Cotality research director Tim Lawless said house values were likely to show modest but uneven growth in 2026, largely dependent on the supply of new property and the actions of the Reserve Bank.
“Renewed speculation that the rate-cutting cycle is over and that the RBA’s next move could be a rate hike has damaged housing confidence,” he said.
“The setting of interest rates ‘higher for longer’ appears to have eased some of the tension in the market, along with a resurgence in cost of living pressures and worsening affordability pressures.”
The figures cast doubt on claims by some property experts and the Coalition that the government’s 5 per cent home deposit scheme, which has been extended to all first-time buyers from October 1, is driving up prices.
Home value growth has declined in most markets since the expanded program began.
Last year, house values increased fastest in Darwin, at 19.9 percent, while housing in the city increased by 17 percent. Brisbane (14 per cent) and Perth (15.7 per cent) experienced double-digit growth in house values.
Sydney’s house values increased by 6.9 per cent last year, while Melbourne recorded a national low of 5.4 per cent.
Cotality’s measure of national median home value for 2025 is up 8.6 percent, or $71,400.
It was the strongest calendar year since 2021, when values rose by 24.5 percent, the biggest annual increase in a generation.
In the nation’s capital cities, certain suburbs performed better.
The biggest increase in the country was in the Darwin area of Palmerston, where values increased by 26.3 per cent.
Other large increases were recorded in Perth’s inner eastern suburbs area, which includes Belmont and Victoria Park (up 20%); south Brisbane suburbs Springwood and Kingston (19.5 per cent); and the south-east Melbourne suburb of Frankston (14.3%).
The smallest increases were recorded in suburban Canberra, where a surge in apartment construction has boosted local supply.
Regional parts of Australia continued to record sharper increases in value. The biggest was seen in Albany in Western Australia’s south-west, where values rose 23.7 per cent to $741,348.
In the northwestern Victorian border city of Mildura, values increased by 19.2 per cent, while across Queensland’s Granite Belt, values increased by 20.4 per cent.
There are some signs of relief in the nation’s real estate market as values continue to rise. Cotality noted that the rental vacancy rate rose marginally to 1.6 per cent, although it remained at the level at the beginning of 2025.
Cotality’s rent measure rose 0.3 per cent last month, following a 0.5 per cent increase in November. The largest annual increase in house rents was recorded in Darwin with 7.6 percent, while residential rents increased the fastest in Hobart with 9.3 percent.
The smallest increases were experienced in the two provinces where supply increased the most during the year. Rents increased by 2.9 per cent in Melbourne and 3 per cent in Canberra.
Cotality research director Lawless warned rents, which have been one of the drivers of Australia’s inflation rate for the past four years, will continue to rise.
“We will have a better idea of the rental conditions in February. But even if the conditions have relaxed a little, it remains extremely tight and rents are likely to increase further by 2026,” he said.
Monthly inflation figures for December to be announced next week will give an idea of whether price pressures continue to increase, a development that could result in the Central Bank raising official interest rates at its first meeting of the year in early February.
Financial markets forecast a 30 per cent chance of a rate hike next month but fully expect the RBA to raise the cash rate to 3.85 per cent by August.
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Shane Wright- Shane is the senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: excitement or email.
