Australia’s Property Market in 2026: Why Some Cities Are Falling While Others Keep Rising
Six months ago, the story of Australian property was resilience. Prices kept climbing through rate hikes and a cost-of-living squeeze that refused to ease. That story has changed.
National home values are now falling, and the two biggest cities are leading the slide. But the headline number hides what is really going on, because Sydney and Melbourne look nothing like Perth, Adelaide and Brisbane right now. That split is the real story of this market.
Here is what is happening, what the major forecasters expect, and where the opportunities still sit.
The Market is Falling in Two Cities, Not the Whole Country
Australia’s national home value index fell 0.4% in June 2026, the largest monthly drop since December 2022. Over the June quarter, capital city values were down 1.3%. Investors should compare the best suburbs to invest in Australia before making decisions.
But that national figure blends two very different markets:
Why the gap? It mostly comes down to how much people borrow. Buyers in Sydney and Melbourne take on the most debt relative to their income, so higher interest rates hit them hardest. Understanding borrowing capacity for investment property is more important in higher-priced markets.
Those two cities also have more homes listed for sale, which adds to the downward pressure. Perth, Adelaide and Brisbane remain genuinely short of housing, which is keeping their prices firmer.
Other signs of a cooling market are clear too. Auction clearance rates have sat below 50% since late May, and the number of homes sold across the capitals is running about 16% lower than a year ago.
What Actually Changed this Year
Two big things landed close together.
First, interest rates went up. The Reserve Bank raised the cash rate three times in 2026, in February, March and May, lifting it from 3.60% to 4.35%. It then held steady in June to give households some breathing room. Most economists now expect rates to stay on hold for the rest of 2026, with the first cut likely around the middle of 2027.
Second, the federal Budget in May reshaped the tax rules for property investors. Investors should review their property investment tax strategy before buying. More on that below.
A softer job market is part of the reason the Reserve Bank has paused. Unemployment rose to 4.5% in April 2026, its highest level since 2021, before easing slightly to 4.4% in May.
The Budget Changes, in Plain Terms
The May 2026 Budget introduced the biggest shake-up to property tax in decades. Two changes take effect from 1 July 2027:
- Negative gearing will be limited to new builds. Losses on established rental properties can no longer be claimed against salary or wages. They can only be offset against other property income or future capital gains.
- The 50% capital gains tax discount is being replaced with a system based on inflation, plus a minimum 30% tax on gains.
NOTE: Nothing changes for property bought before 7:30pm on Budget night, 12 May 2026. Those investors keep the current rules. New builds also stay fully exempt from both changes.
This makes property investing more complex, but it does not end it. And while new builds keep their tax perks, that alone does not make them a smart buy. Investors have historically overpaid for new stock that then struggles to grow in value.
How the Forecasters see the Year Ahead
The major banks have all trimmed their expectations, and they land in a similar place.
Commonwealth Bank expects prices to grow about 3% over both 2026 and 2027, a step down from earlier forecasts, with established homes around 3% cheaper than they would have been without the tax changes. Most forecasters expect conditions to stay soft through 2026 and into 2027, with a gradual recovery beginning around the middle of next year, timed to the first expected rate cut.
Across the board, a familiar pattern holds:
- Units are holding up better than houses.
- Cheaper suburbs are proving more resilient than the top end of the market.
- The cities feeling weakest today are often the ones that rebound hardest once rates start falling.
Where the Opportunity Still Sits
A flat or falling market rewards being selective. History suggests the same types of property tend to hold their value and recover first:
- Well-located houses and family-friendly apartments in established, in-demand suburbs.
- Areas with strong owner-occupier demand, which does not disappear just because investor activity slows.
- Inner and middle-ring suburbs, which tend to outperform outer areas where buyers are more stretched.
Outer suburbs with weaker wage growth and more highly-leveraged owners are likely to feel this correction most.
The Bottom Line
Soft markets often create opportunities for investors working with an independent buyers agency. This is a correction driven by interest rates and tax policy, not a collapse in the forces that drive property values over the long term. Those forces are still in place. Australia’s population keeps growing, the country is not building enough homes to keep up, and household wealth continues to rise even while confidence is low.
For investors who are financially stable, soft markets like this one are often when quality property trades at a discount to where it is likely to sit a few years from now. The key is being more selective than ever about location and quality, rather than buying simply because prices have dipped.
Disclaimer: This article is for general information purposes only and does not constitute personal financial, legal, or tax advice. Property investment decisions depend on individual circumstances, goals, and risk tolerance. Before making any investment decision, we recommend speaking with a qualified property investment advisor, financial advisor, or tax professional who can assess your specific situation. Thanks for reading our blog.
Frequently Asked Questions
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Is 2026 a good time to buy an investment property in Australia?
It may be a suitable time for financially prepared investors who are willing to research carefully and hold property for the long term. Softer market conditions can create better negotiating opportunities, but a lower price does not automatically make a property a good investment.
Investors should consider borrowing capacity, cash flow, local rental demand, vacancy rates, property supply and their ability to manage higher repayments before purchasing.
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Should investors buy now or wait for interest rates to fall?
Waiting for lower interest rates may improve borrowing affordability, but it could also mean facing stronger buyer competition if market confidence returns. Buying during a softer period may provide more negotiating power and a wider choice of properties.
The decision should be based on personal financial readiness rather than trying to predict the exact bottom of the market. The RBA held the cash rate at 4.35% in June 2026 after increasing it in May.
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How do higher interest rates affect Australian property prices?
Higher interest rates increase mortgage repayments and generally reduce how much buyers can borrow. This can weaken demand, extend selling periods and place downward pressure on property prices.
The effect is often stronger in expensive markets where households carry larger mortgages. However, cities with limited housing supply and strong population or employment growth may remain more resilient.
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Why can units perform better than houses during a market slowdown?
Units are generally more affordable than houses, making them accessible to a larger group of first-home buyers, downsizers and investors when borrowing capacity is limited.
Well-located apartments may also benefit from strong rental demand, access to employment centres and lower entry prices. However, investors should still examine strata costs, building quality, future apartment supply and the proportion of owner-occupiers in the development.
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What indicators should investors compare before choosing a city?
Investors should look beyond recent price growth and compare:
- Population and employment growth
- Housing supply and development approvals
- Rental vacancy rates
- Rental yields and affordability
- Infrastructure investment
- Owner-occupier demand
- Days on market and listing volumes
- Local economic diversity
A city with rapid recent growth is not necessarily the best future investment if affordability is weakening or new supply is increasing.
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What types of properties tend to remain resilient in a falling market?
Properties with characteristics that remain desirable to owner-occupiers often hold their value better. These may include well-located houses, townhouses and family-friendly apartments near employment, transport, schools, shops and established amenities.
Properties with scarce land, practical layouts, low ongoing costs and limited competing supply may also be more resilient than highly specialised properties or apartments in oversupplied developments.
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How can investors reduce risk when property markets are divided?
Investors can reduce risk by avoiding overexposure to one location, property type or investment strategy. They should also maintain a financial buffer, use conservative rental assumptions and test whether they could manage higher repayments or temporary vacancies.
Diversification does not always require immediately buying in several cities. It can also mean selecting properties supported by different employment sectors, tenant groups and market drivers.