Rate rises and Budget tax changes are pushing the national housing market into its first annual decline since 2022
Australia's housing market is heading for a period of price weakness through the remainder of 2026, according to KPMG Australia's latest Residential Property Market Outlook.
KPMG now forecasts national house values will fall 1.1% over calendar year 2026, a significant downward revision from its previous outlook. National unit prices are expected to post modest growth of 2.2% over the same period. A recovery is then projected for 2027, with house prices forecast to rise 3.4% and unit prices 3.7%.
The report attributes the deterioration to a combination of three consecutive cash rate increases, persistent domestic inflation, and renewed inflationary pressures linked to the Iran conflict. Changes to the treatment of capital gains and negative gearing announced in the federal Budget have also weighed on investor sentiment.
According to the KPMG report, national house prices grew 5.5% over the year to the June quarter 2026, while unit prices rose 6.6%. Both figures fell short of KPMG's earlier projections and reflected a sharp deceleration from the 9.1% annual house price growth recorded in the December quarter 2025. The June quarter also marked the first quarterly decline in national house prices since late 2022, with values falling 1.0% quarter-on-quarter.
The sharpest corrections are forecast in Melbourne (-5% for houses in 2026) and Sydney (-4.4%), with Canberra also expected to record a decline (-2.6%). Darwin is projected to be the strongest performer, with house and unit prices both forecast to grow 8% in 2026.
Brisbane, Perth and Adelaide — which have led national price growth in recent years — are expected to record sharply slower but still positive growth. Perth is forecast at 6.4% for houses, Brisbane at 4.6%, and Adelaide at 5.3%.
For 2027, rebounds are forecast in Sydney (3.6%), Melbourne (3.3%) and Canberra (3.0%) as those markets recover from a weaker base. Growth in Brisbane, Perth and Adelaide is expected to moderate further, constrained by affordability pressures following years of exceptional price appreciation.
| Forecast dwelling price growth, by property type and market (y/y) | ||||
|---|---|---|---|---|
| Location | House | Unit | ||
| Dec 26 | Dec 27 | Dec 26 | Dec 27 | |
| Sydney | -4.4% | 3.6% | 0.0% | 3.4% |
| Melbourne | -5.0% | 3.3% | 0.4% | 3.6% |
| Brisbane | 4.6% | 3.6% | 7.3% | 4.0% |
| Adelaide | 5.3% | 2.4% | 6.5% | 3.9% |
| Perth | 6.4% | 3.6% | 4.4% | 4.0% |
| Hobart | 4.8% | 2.4% | 4.2% | 3.6% |
| Darwin | 8.2% | 4.6% | 8.1% | 6.9% |
| Canberra | -2.6% | 3.0% | 1.0% | 3.4% |
Source: KPMG's calculation
KPMG expects units to outperform detached housing over the next two years, supported by relative affordability, higher rental yields and ongoing demand for lower-cost dwellings. The expanded 5% Deposit Scheme is also expected to concentrate buyer activity below relevant price thresholds, further supporting the unit segment.
Housing affordability deteriorated further in the March quarter, with the HIA Housing Affordability Index falling to 54.9 — its lowest level since the index began. The repayment-to-income ratio climbed to 54.6%, some 21.2 percentage points higher than in the March quarter of 2020.
Lending activity also softened. The number of new home loan commitments fell 6.2% quarter-on-quarter in the March quarter 2026, though volumes remained 8.6% higher than a year earlier. First-home buyers recorded the steepest decline, with the value of owner-occupier first home buyer loans falling 6.7% over the quarter to $17.9 billion.
Despite higher mortgage stress, KPMG noted that the risk of widespread defaults remains contained. Data from Roy Morgan classified 29.0% of mortgage holders as at risk of mortgage stress in the three months to May 2026, below the 30.3% recorded in June 2024.
Australia's structural housing shortage remains a key constraint. KPMG forecasts net new dwelling supply of approximately 160,000 dwellings annually in FY26 and FY27, well short of the pace required to meet the National Housing Accord target of 1.2 million homes by mid-2029. The firm estimates a supply shortfall of 24,000 dwellings in FY26, narrowing to 17,000 in FY27.
Source: KPMG’s calculation, Housing Australia
The National Housing Supply and Affordability Council has separately projected the Accord target will not be reached until September 2030 — more than a year beyond the stated deadline.
Rental markets remain tight, with the national residential vacancy rate holding at 1.2% in May 2026. Rents rose 3.6% over the year to June, and KPMG projects annual rental growth of around 3.7% through the remainder of 2026, compared with the pre-pandemic 10-year average of 2.3%.
KPMG cautioned that the depth and duration of the downturn remain uncertain. Weak market sentiment may persist beyond what underlying fundamentals warrant, and a higher-for-longer interest rate environment could delay the projected 2027 recovery. The firm's baseline assumes one further 25 basis point rate rise in 2026, taking the cash rate to 4.60%, with a single cut in the June quarter 2027.
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