Australia’s housing market delivered a solid performance in 2025, but fresh data suggests the pace of growth is already easing as the market heads into a more uncertain 2026.
New figures from Cotality show December recorded the smallest monthly increase in home values in five months, hinting that momentum is beginning to fade as interest rate expectations and affordability pressures reassert themselves.
Growth slows heading into the new year
Cotality’s national Home Value Index rose 0.7 per cent in December, marking a clear deceleration compared to earlier in the year.
Australia’s two largest housing markets were the main drag. Sydney and Melbourne both recorded month-on-month declines of 0.1 per cent, the first combined monthly fall since January last year, before rate cuts began in February.
All other capital cities and broad regional markets recorded price rises through December, although most showed signs of cooling as buyer urgency eased.
Rate speculation weighs on confidence
Cotality research director Tim Lawless said the late-year slowdown could signal a softer start to housing conditions in 2026.
“Renewed speculation that the rate-cutting cycle is over and the next move from the RBA could be a hike has dented housing confidence,” Mr Lawless said.
A “higher for longer” interest rate environment, combined with persistent cost-of-living pressures and worsening affordability, has begun to redirect buyer behaviour.
2025 still delivered a strong result
Despite the December slowdown, 2025 closed as a standout year for housing values.
Nationally, dwelling values surged 8.6 per cent over the calendar year, adding approximately $71,400 to the median dwelling value. It was the strongest annual growth outcome since 2021, when emergency-low interest rates drove a 24.5 per cent boom.
Every capital city and broad rest-of-state region recorded price growth across the year. Darwin led the gains with an 18.9 per cent increase, while Melbourne recorded the weakest performance at 4.8 per cent.
Affordability reshapes demand
Affordability pressures continued to influence where buyers competed hardest.
Across the national market, upper-quartile dwelling values rose just 0.2 per cent in December, while values in the lower quartile and middle market climbed 1.1 per cent.
“This trend has played out across every capital city through the year,” Mr Lawless said, “as affordability and serviceability pressures deflect demand towards lower price points.”
For builders, this shift reinforces the ongoing demand for smaller, more efficient homes and well-located medium-density product that sits within tighter borrowing limits.
Regional markets remain more resilient
While regional markets are not immune to slowing momentum, they continue to outperform capital cities.
Combined regional dwelling values rose 1.0 per cent in December, easing from 1.2 per cent in November, but still double the 0.5 per cent monthly growth recorded across the combined capitals.
Over 2025, regional values increased 9.7 per cent, outpacing the 8.2 per cent rise across capital cities.
Among regional markets, Western Australia stood out with 16.1 per cent annual growth, followed by Queensland at 12.6 per cent. Victoria lagged with 6.0 per cent growth across its regional markets.
What 2026 may bring
Looking ahead, the outlook for 2026 is more subdued than the year just passed.
Uncertainty around inflation, interest rate settings and household debt levels is expected to weigh on buyer confidence. Affordability constraints are also likely to remain front of mind, particularly in higher-priced markets.
However, there is a key counterbalance.
A meaningful supply response is still unlikely in 2026. Planning delays, construction costs and capacity constraints continue to limit new housing delivery, which should help prevent a sharp correction in home values even as demand softens.
The Good Builder view
The housing market is not rolling over, but it is recalibrating.
After a strong 2025, conditions are shifting toward a more measured environment where affordability, product fit and local fundamentals matter more than momentum alone. For builders, developers and suppliers, 2026 is shaping up as a year that rewards discipline, efficiency and alignment with where real demand sits.
The era of easy gains may be behind us. The need for smart building decisions is not.
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