Domain Group says Australia’s housing market is on track to break new records across every capital city by the end of next year.
Releasing its Forecast Report for 2026, the data analytics firm says the median house price in Sydney should rise by 7% to $1.92 million, edging closer to the astounding $2 million mark, which it describes as “an out-of-reach milestone for many aspiring buyers”.
Melbourne, which has suffered sub-par price growth for a number of years, will recover strongly and is expected to climb 6%, adding $87,000 to the median house price, set to reach $1.17 million by year's end.
Domain believes a rush of first-home buyers competing with investors, particularly for more affordable stock, will inject new energy into the property market, which it says will equate to the same effect on home prices as “the equivalent of up to five RBA rate cuts at once.”
The details
Domain says that after years of “affordability strain and tight supply”, the next phase of the property cycle will be driven by lower interest rates, rising household incomes and a wave of first-home buyer demand under the Albanese government’s expanded First Home Guarantee Scheme.
“Australia’s housing market is set for another strong year, with demand still high and buyers continuing to chase affordability, particularly in the unit market, which is expected to outperform in several cities,” says Domain’s Chief of Research and Economics, Dr Nicola Powell.
After extremely strong price growth this year of 14%, 16% and 12% respectively, units in Brisbane, Adelaide and Perth are forecast to perform the best in 2026, seeing growth of 5-7%.
Domain believes units will outperform houses in these three cities, as buyers search for more affordable housing options.
Sydney and Melbourne are both predicted to see solid unit price growth of 4%.
However, Domain expects the surge to taper off in late 2026 as new housing supply finally hits the market and affordability limits are reached.
“There are encouraging signs on the horizon, with new housing supply starting to come to market as building activity picks up,” Dr Powell says.
“While prices and rents will remain elevated, slower population growth, rising incomes, and a cautious RBA should help the market move toward more balanced conditions by the end of 2026.”
Nevertheless, Domain says renters will “still do it tough” in 2026.
The firm expects rents to reaccelerate, rising 3% for houses and 6% for units across the combined capital cities.
Rent growth for units in Sydney and Melbourne is tipped to be very strong at 7% and 6%, respectively.
Market drivers
Domain believes the property market in 2026 will be largely driven by a first-home buyer surge and strong investor demand colliding with tight supply - a scenario which could see the equivalent market stimulus of up to five 0.25% Reserve Bank of Australia rate cuts at once.
Domain Senior Economist Joel Bowman says recent ABS lending figures show investor activity has roared back to life.
“We did see a big uptick in investor loans,” he says.
“In the September quarter, the number of loans are up around about 14%… the values reached $40 billion for investor loans.”
“So, that’s above the previous peak of about $33 billion in 2022.”
Mr Bowman told The Savings Tip Jar podcast the rebound is a clear market signal.
He says investors are responding to a rare combination of falling borrowing costs, extremely tight rental markets and expectations of further competition, as first-home buyers re-enter the market under the expanded Federal Government Home Guarantee Scheme.
“I think investors have been drawn into the market by the fall in borrowing costs this year, as well as the low vacancy rates that we’ve seen across the country,” he says.
“It’s tilted the market in favor of landlords.”
Some are also trying to get ahead of new demand.
“I think some investors may have been quite on the money and wanting to get in ahead of those first-home buyers,” he says.
First-home buyer surge
The Albanese government’s Home Guarantee Scheme, which allows eligible buyers to enter the market with just a 5% deposit and no lender’s mortgage insurance, is expected to reshape the first-home buyer landscape.
Domain Senior Economist Joel Bowman says the expanded scheme, which came into effect on the 1st of October 2025, is powerful enough to shift buying timelines.
“The expansion of the scheme can dramatically reduce the incentive of perhaps waiting an extra year or two… I think what that will do is it will bring forward a lot of first-home buyers,” he says.
“My base case is that we will see a notable uptick in first-home buyers, and that should filter through into the next quarter of loan data.”
Victoria’s resurgence
Joel Bowman says one of the biggest takeaways from the ABS lending figures is an investor revival in Victoria, despite recent land-tax hikes and the new Airbnb levy in that state.
“Over the last few years, there’s certainly been some notable policy shifts in Victoria, which has favoured renters rather than landlords.”
But he says fundamentals, not sentiment, are now driving behaviour.
“For Victoria, the prices now are a lot more affordable relative to a lot of other capital cities.
“The rental yields… are now notably higher in Victoria compared to the likes of Sydney.
“I think it’s making Victoria stack up on paper quite attractively, relative to some of the other states… despite perhaps incurring some of these additional charges,” he says.
Upgraders and downsizers
Domain’s Forecast Report for 2026 says existing owner-occupiers looking to “upgrade” or “downsize” are heading into two very different markets.
It says upgraders, particularly in Sydney and Melbourne, “are likely to face steeper prices and stronger competition.
“Downsizers, meanwhile, stand to benefit from higher sale prices and a wider pool of suitable homes.
“More affordable segments, especially units, are expected to outperform, meaning competition will remain strong at that end of the market.”
Strong price growth, weak listings
Despite robust demand, the traditionally busy Spring selling season has been characterised by tight supply.
“Market momentum has been strong,” Domain Senior Economist Joel Bowman says.
“House prices across our combined capital cities have increased by 2.9% in the September quarter… that’s the strongest quarterly growth since December 2021.”
But listings haven’t kept up.
“Current listings in September were down around 6.5% compared to the same time last year,” he says.
“Auction volumes were also down about 8%.”
So, while demand is clearly rising, the number of homes coming onto the market is not.
Joel Bowman expects supply to eventually loosen, albeit slowly.
“My base case is for supply to gradually pick up,” he says.
“Higher prices may nudge more owners to list, “perhaps towards the beginning of next year, but it’s always hard to say.”
With investor activity picking up, first-home buyers rushing into the market earlier than planned, and listings still lagging demand, the stage is set for another year of strong property price growth.