Australian house prices stagnate as interest rates fear rack markets – realestate.com.au

Panic over looming interest rate hikes has put the brakes on the once soaring housing market, with prices rising modestly in mid-sized capitals while falling in Sydney and Melbourne.

PropTrack’s monthly Home Price Index showed Australian house prices, based on sales of units, townhouses and houses, rose 0.1 per cent in December – the slowest pace in almost a year.

National prices had risen sharply in recent months, with the median price of a home rising 8.8 percent, or $82,200, from early 2025.

Experts revealed that the market had lost enthusiasm as higher-than-expected inflation figures in November had removed any chance of further cuts to the RBA cash rate and allowed for rate hikes in early 2026.

Homes are not being built fast enough to meet demand, and this could mitigate the changing interest rate environment.

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The shift was significant because this year’s three rate cuts – first in February, then in May and August – had boosted buyer confidence and driven much of the price growth in 2025.

PropTrack noted that this change meant that home price increases were likely to rise more slowly in 2026, with national growth expected to slow to around 5 percent for the year.

Furthermore, sustained price declines in major markets were unlikely due to ongoing housing shortages, still strong migration and government stimulus measures such as the First Home Guarantee Scheme, PropTrack said.

“The pace of growth is expected to slow,” the Home Price Index report said.

“Price growth in 2025 has been supported by three rate cuts. No further cuts are expected this year, and there is a possibility that rates will rise if inflation persists.

The average price of a house in a capital city is now around $1 million.

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“However, these headwinds are being countered by a limited supply of new homes and sustained demand. The Australian government’s 5 per cent deposit scheme is also likely to support price growth by boosting demand, particularly at the more affordable end of the market.”

Adelaide topped Australian cities for price growth in December, with average home value growth of 0.8 percent. In Brisbane and Perth, growth averaged 0.5 percent.

All three cities have been a magnet for real estate investors this year due to their better affordability compared to larger capitals.

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Sydney and Melbourne were the weakest markets, with prices falling 0.3 percent, while Canberra recorded an average decline of 0.2 percent.

Auctioneer Michael Garofolo, director of auction house Cooley, said the mere threat of another rate hike was enough to make some buyers more cautious.

Mr Garofolo explains that this trend is particularly noticeable on more expensive properties where buyers are taking out larger mortgages.

Meanwhile, more affordable properties, especially those within the price ceiling of the government’s First Home Guarantee Scheme, remained hotly contested.

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