Weaker housing market tipped as rate hike fears mount
The housing market will start 2026 on a weak note as confidence is damaged by fears that the Reserve Bank’s next move will be an interest rate hike, a leading property data provider says.
Cotality’s national Home Value Index rose 0.7 per cent in December, the smallest increase in five months.
Sydney and Melbourne were the biggest hurdles to the growth outcome, with values falling by -0.1 per cent.
This was the first monthly decline since January 2025.
All other capital cities and the remaining parts of the state recorded an increase in values throughout December, but most saw some momentum disappear from the market.
Tim Lawless, research director at Cotality, said the easing pointed to a weaker start to 2026.
But continued undersupply of housing will be enough to maintain upward pressure on prices, he told AAP.
He said the slowdown in the growth rate, particularly in Sydney and Melbourne, was a clear sign of “a pretty significant collapse in confidence because of higher inflation and this really hawkish stance from the RBA”.
However, rising construction costs and a tight labor market for the construction industry will continue to keep the housing supply well below what the country needs, thus causing house prices to rise.
“I think we will face the same kind of hurdles to getting more shares into the market in 2026,” Mr. Lawless 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.”
Despite softer results in December, the Home Value Index is up 8.6 percent in 2025, adding nearly $71,400 to the national average home value.
This was the strongest calendar-year gain in home values since 2021, when the market rose 24.5 percent due to emergency low interest rates and record buying activity.
An increase in house values was recorded in all capital cities and the remaining parts of the state during the year; Darwin recorded this with an increase of 18.9 per cent, while Melbourne recorded a slighter increase of 4.8 per cent.
Regional markets were more resilient to the slowdown but were not immune.
The monthly growth rate in Australia’s combined regional markets slowed to 1.0 per cent in December from 1.2 per cent in November.
Despite the slowdown, the monthly earnings pace was twice the combined growth trend in the capital, where values rose 0.5 percent in December.
Over the calendar year, regional house values increased by 9.7 per cent, outpacing the 8.2 per cent increase recorded in the capital cities combined.
Across the rest of the state, Western Australia stood out with an annual increase of 16.1 per cent, followed by regional Queensland with a 12.6 per cent increase.
Regional Victoria recorded the lowest growth result for the year, with an increase of 6.0 per cent.
Tenants saw some relief in December, with the vacancy rate for rental housing rising from 1.5 percent to 1.6 percent during the month, accompanied by a slowdown in rent growth.
But Mr Lawless said rents, which rose by 5.2 per cent nationally in 2025, were likely to rise further by 2026.
Regional WA recorded the biggest annual increase with a 10.1 per cent increase, followed by Darwin with an 8.2 per cent increase.
Melbourne recorded the smallest increase in rents, up 2.9 per cent.
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