Sydney’s red-hot property market is expected to slow in 2026, according to new forecasts from PropTrack, as higher interest rates, affordability pressures and increased housing supply begin to weigh on price growth.
While prices are still expected to rise, the pace of growth is forecast to be more moderate than what buyers and sellers experienced throughout 2025.
More Modest Growth Ahead
PropTrack’s latest Property Outlook report forecasts Sydney dwelling prices to increase by 5–7 per cent over 2026, compared to an average 7 per cent rise in 2025.
Based on current figures, this would see Sydney’s median dwelling price — across houses, townhouses and units — climb from around $1.23 million to more than $1.3 million by the end of 2026, representing an increase of at least $62,000.
However, PropTrack noted that price growth is no longer accelerating.
“In Sydney, 2026 is likely to be a year of more modest gains relative to 2025,” the report said.
What Drove Prices in 2025?
Much of Sydney’s price growth in 2025 occurred during a short but intense period mid-year, following the second RBA rate cut in May, which triggered a surge in buyer activity — particularly in middle- and outer-ring suburbs.
Further momentum followed:
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The third RBA rate cut in August
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The expansion of the First Home Guarantee Scheme in October
Detached houses saw particularly strong gains, with freestanding home prices rising by approximately $120,000 over the year.
Market Cooling Since Spring
Since spring, the market has noticeably cooled. Higher-than-expected inflation figures released in November dampened expectations of further rate cuts, shifting sentiment across the market.
Several major banks have revised their outlook:
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CBA forecasts a rate hike as early as February
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NAB expects hikes in February and May
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ANZ and Westpac anticipate rates remaining on hold
With borrowing capacity no longer expanding, affordability constraints are expected to become a key headwind for price growth.
Where Demand Is Likely to Hold Up
Despite softer conditions, demand is expected to remain resilient in more affordable middle- and outer-ring suburbs, particularly for homes priced under $1.5 million.
Auctioneer Clarence White from Menck and White said buyer behaviour has shifted significantly in late 2025.
“The FOMO that once governed buyer decisions has vanished,” he said.
He noted that:
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Buyers now have more choice
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Properties priced above $2 million are harder to move
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Homes under $1.5 million are still performing well, supported by government incentives
First Home Buyers to Support the Market
REA Group economist Anne Flaherty said government support measures could help keep parts of the market active.
“Even without further interest rate cuts in 2026, home values in Sydney are still expected to grow off the back of structural supply shortages and population growth,” she said.
Areas with prices below $1.5 million are expected to see the strongest demand, driven by the 5 per cent deposit First Home Guarantee Scheme.
What to Expect in Early 2026
Western Sydney auctioneer Michael Garofolo said some buyers have stepped back after a year of intense competition but may return in 2026.
With more listings expected to hit the market in February, buyers could have greater choice than in 2025 — although overall conditions are still expected to remain “fairly strong”.
The Bottom Line
Sydney’s property market is entering a more balanced phase. While rapid price acceleration may be behind us, steady growth is still expected — particularly in affordable suburbs and price brackets supported by government incentives.
For buyers, 2026 may offer more choice and less competition. For sellers, realistic pricing and strong presentation will be key as market conditions normalise.
