Booming cities face slowdown as housing market passes $12 trillion milestone
The housing market has reached an eye-watering new peak, but economists say rising interest rates will force a slowdown in even the hottest states.
The total value of Australia’s 11.45 million residential dwellings surpassed $12 trillion for the first time in the December quarter, according to data released by the Australian Bureau of Statistics on Tuesday.
Over the three month to December, rising property prices across the country drove the value of Australia’s housing market up by 3.2% to a record $12.3 trillion, accelerating the pace of growth seen in the September quarter when total values reached a record $11.9 trillion.
But the latest figures predate one key event that’s expected to lead to a broad-based property slowdown.
In February, the RBA delivered its first interest rate hike in more than two years – and economists say at least one, if not more, are on the way.
Economists at all of the big four banks have downgraded their property price forecasts for 2026 and 2027 on the back of the interest rate hike, and even the hottest capital cities of Perth and Brisbane are expected to see a rapid pullback in price growth.
Rising interest rates are expected to weigh on housing markets, though limited supply of housing will see some cities outperform in short term. Picture: Getty
While expected changes to housing-related policies such as the Capital Gains Tax discount could put some pressure on the market, economists at the Commonwealth Bank say higher mortgage rates will be the primary driver of a slowdown.
“After a strong run, dwelling price growth is expected to slow over the remainder of 2026,” CBA senior economist Trent Saunders said.
“The slowdown primarily reflects the effect of higher mortgage rates, with the February cash rate hike and an anticipated further increase in May set to add to borrowing costs and cool buyer sentiment.”
In the absence of factors including rate hikes, a slowdown in population growth and tax changes, CBA said its housing price growth forecast would be round to 7% in both 2026 and 2027 - compared to its new downgraded forecast of 5% and 3%.
Here’s how property prices performed across the country in 2025:
PropTrack data shows national home prices rose by 8.8% in 2025, with all major banks now predicting that will slow to about 5% in 2026 and between 3-4% in 2027.
Property price growth forecasts - National
| Bank | 2026 forecast | 2027 forecast |
| CBA | 5% | 3% |
| ANZ | 4.8% | 3.8% |
| NAB | 5% | 4% |
| Westpac | 5% | 4% |
But what the national picture fails to show is the wide divergence between states and territories, with tight supply and strong demand driving a property boom in Perth and Brisbane.
This outperformance is expected to continue in the near term, but economists are anticipating a rapid pullback throughout 2027.
“The mid-sized capital cities are forecast to continue to outperform Sydney and Melbourne this year, with the gap most pronounced in Perth and Brisbane,” Mr Saunders said.
“The question is how long can this strong growth last? Based on our forecasts, not much beyond 2026.”
By the end of 2027, the CBA forecasts see annual price growth in Perth and Brisbane slowing to about 4%, down from last year’s 17.2% and 14.6% respectively.
"As higher interest rates take hold, housing construction picks up, population slows, and affordability constraints become more binding, price growth in Brisbane and Perth is expected to slow."
Property price growth forecasts – Capital cities
| Sydney | Melbourne | Brisbane | Perth | Adelaide | Hobart | ACT | Darwin | |
| 2025 (actual) | 6.4% | 4.5% | 14.6% | 17.2% | 12.8% | 7.8% | 4.2% | 14.5% |
| CBA forecasts | ||||||||
| 2026 | 2% | 1% | 12% | 15% | 9% | 5% | N/A | 4% |
| 2027 | 3% | 2% | 4% | 4% | 3% | 2% | N/A | 2% |
| ANZ forecasts | ||||||||
| 2026 | 2.5% | 2.1% | 9.5% | 10.9% | 6.1% | 3.8% | 2.2% | 13.7% |
| 2027 | 3.5% | 4.2% | 3.9% | 4.3% | 2.3% | 1.7% | 1.6% | 8.8% |
| NAB forecasts | ||||||||
| 2026 | 3.3% | 2.1% | 12% | 13.3% | 9.5% | 2.8% | N/A | N/A |
| 2027 | 2.7% | 5.8% | 4.9% | 6.2% | 3.7% | 2.4% | N/A | N/A |
| Westpac forecasts | ||||||||
| 2026 | 3% | 4% | 7% | 8% | 6% | 3% | N/A | N/A |
| 2027 | 3% | 6% | 4% | 6% | 5% | 4% | N/A | N/A |
Affordability constraints in Sydney will remain a ‘significant headwind’ on price growth, he said, while Melbourne remains ‘more nuanced’ following years of underperformance that’s seen it slip down the median property price ladder, from second place to sixth.
“Higher rates of construction in recent years, relatively softer local economic conditions, and Victoria’s less investor-friendly tax backdrop are likely to keep a lid on a stronger rebound,” Mr Saunders said.
“That said, there’s a plausible upside scenario for Melbourne.
“If demand catches up to the market’s improved affordability, Melbourne could see stronger-than-expected price growth over the next 18 months.”
Property price growth in Melbourne is expected to remain subdued in 2026 and 2027. Picture: Getty
Updating its price forecasts in late February, Westpac said tight supply would be a key factor even as higher interest rates weigh on affordability.
“Just when it looked like it was safe to go back into the water again, a ‘rate rise surprise’ has sparked new fears about Australia’s housing market outlook in 2026,” Westpac’s head of Australian macro-forecasting, Matthew Hassan, said.
“However, there are some indications that housing markets could be quite resilient.
“One of the most striking features at the moment is the tightness of supply, particularly in the Brisbane, Adelaide and Perth markets which are continuing to post stronger and more resilient price gains.”
He said some of these markets are entering “almost uncharted territory” in terms of thin supply and stretched affordability.
Tight supply and strong demand has caused Perth's property market to double in five years, but economists say the rapid growth won't last "much beyond 2026". Picture: realestate.com.au
ANZ senior economist Madeline Dunk noted total listings are more than 50% below normal levels in smaller capital cities like Brisbane, Perth, Darwin and Adelaide.
“In contrast, new listings are a little higher than usual in Melbourne and Sydney. We expect Melbourne and Sydney to underperform, particularly in the first half of the year, with prices growing less than 3% in 2026.”
It comes as Westpac’s latest homeownership report revealed supply shortages are one of the most significant hurdles for Australians trying to enter the property market, with one in four first-home buyers reporting a lack of listed properties is holding them back.
