Australian property market set to slow, but affordable suburbs expected to grow strongly – realestate.com.au

Affordability seems to be an important theme of 2026.

With interest rates unchanged and government incentives playing a role in the purchasing power of first home buyers, property experts say suburbs where the Australian dream is within reach are likely to have the best price growth.

Affordability will be an important driver in 2026. Photo: NewsWire/Damiaan Shaw

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MODEST GROWTH

Ray White senior data analyst Atom Go Tian says if interest rates don’t fall, price growth is likely to slow nationwide in the first half of the year.

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“Over the past three years, we have seen double-digit growth nationally and in many major cities,” he says. “But these major cities are reaching price thresholds – and with interest rate cuts looking unlikely over the next six months, the forecast is that this growth will slow.”

Ray White predicts single-digit price growth for the first half of 2026.

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John McGrath, CEO of McGrath Estate Agents, says we can expect price growth if interest rates eventually fall.

“As global economic and political uncertainty stabilizes over the next 12 months, I think demand will escalate and prices will rise, but perhaps not until we get another long-awaited rate cut or two,” he says. “Interest rates are difficult to read. The experts all predicted further rate cuts, but that view seems to have softened and some even predicted a rate hike.

“I think we will see rates lower towards the end of the year, but it could be a little slower than originally forecast.”

In the meantime, the forecasts are quite conservative.

“I believe prices will stabilize in the market, with modest growth in some markets,” says McGrath.

CEO of McGrath Real Estate Agents John McGrath.

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AFFORDABILITY Squeeze

LJ Hooker, head of research Mathew Tiller, says more affordable areas are likely to see stronger growth next year.

“Given the affordability crunch, I think location-wise we will see more activity in the suburbs and regional hubs,” he says. “In terms of property type, looking at apartments, townhouses and duplexes instead of large, detached homes is also likely to be a trend for next year.”

Mathew Tiller, head of research at the LJ Hooker Group.

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Go Tian says suburbs where prices fall below the property price caps set by the Australian Government’s 5% Deposit Scheme are likely to see greater demand from first home buyers.

“We will see that the suburbs will probably grow and approach this limit,” he says. “Once they reach this limit, it is likely that buyers will look elsewhere for areas that fit within the limit.”

Data from Ray White’s sister company Loan Market shows that lending to first home buyers doubled last quarter compared to the same period last year, he says.

“Demand is increasing,” he says. “This is due to the limited supply and the extensive deposit system of 5 percent.”

Newcastle was one of the original satellite towns. Photo: Destination NSW / Alexandra Adoncello

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INVESTOR ACTIVITY

He says regional Australia could see a “fourth phase” of investor activity in 2026, having already seen three phases of growth in the past decade. While the first pre-pandemic phase centered around ‘satellite cities’ not far from capitals, the second took place during Covid and was driven by a ‘national lifestyle migration’. More recently, the third wave of regional investment has seen industry-specific cities boom.

“The next frontier of investment in regional Australia will be driven by cities that can combine this industry and lifestyle aspect,” he says.

Rents will probably rise again in 2026.

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RENTAL GROWTH

Because demand still exceeds supply in many places, rents are likely to rise in 2026, McGrath says.

“The rental market should have another good year, with rents likely to rise another 5 percent or more in most metropolitan markets,” he says. “As new developments come out of the ground this will alleviate the situation somewhat in 2027, but unfortunately for tenants there will be no relief in 2026.”

Tiller says a lack of new construction combined with continued demand will push up rental prices in regional areas.

“It will keep regional markets very tight until we see a substantial increase in supply and construction activity in our regions,” he says.

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