Property prices set to reach new heights in 2025-26, challenging buyers and boosting sellers
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Photo by Khaya Motsa
Australian property prices are on a trajectory to reach unprecedented levels in the 2025-26 financial year, according to new forecasts, presenting a daunting reality for first-home buyers while offering lucrative opportunities for sellers. This development comes as two significant reports shed light on the evolving property landscape, with experts pointing to interest rate cuts as a catalyst for the anticipated price surge.
The Domain Price Forecast Report predicts that Sydney and Melbourne will spearhead the property price increases over the next year. Sydney’s median house price is projected to climb by 7 per cent, reaching a staggering $1.83 million by June 2026. This increase translates to a $112,000 rise, surpassing the average full-time pre-tax earnings of $103,000. Meanwhile, Melbourne’s median house price is expected to grow by 6 per cent, reaching $1.1 million after two years of downturns.
Nicola Powell, Domain’s chief of research and economics, highlights the implications of these rising prices, stating, “The forecast price rises will be a ‘reality check for many people.’ If you’re trying to break into the property market, the next year could be your toughest challenge yet,” she warned. “While interest rate cuts and government support may offer some help, they’re also likely to keep prices rising, especially in Sydney and Melbourne, where the market is more sensitive to rate changes.”
The report also notes that unit prices are set to reach record highs in most capital cities, driven by affordability constraints and first-home buyer incentives. Powell adds, “Growth will slow compared to past cycles, but affordability is still a major barrier, with housing costs consuming a large portion of household income.”
Interest rate cuts are playing a pivotal role in this scenario. The Reserve Bank has already reduced the cash rate by 50 basis points this year, with market expectations of an additional 80 basis points cut by mid-2026. These rate cuts enhance borrowing power, contributing to the upward trajectory of property prices.
In Sydney, the median unit price is forecast to jump by 6 per cent to $889,000, marking a record high. Brisbane’s median unit price is expected to rise by 5 per cent to $701,000, while Perth and Adelaide will see increases of 6 per cent and 3 per cent, respectively.
In parallel, Cotality’s latest Pain and Gain report provides insights from the perspective of sellers. The report, which analysed 86,000 property resales in the March quarter, found that 94.9 per cent of these transactions were profitable, with a median nominal gain of $305,000. Although this figure represents a slight decrease from the previous quarter’s $310,000, it still underscores the profitability of the current market.
Eliza Owen, Cotality’s head of research, describes the housing market as being in transition, with profitability expected to rise further following the Reserve Bank’s rate cuts in February and May. “Although profitability held steady in early 2025, we’re seeing clear signs of renewed momentum,” Ms Owen said. “With rate reductions now flowing through to buyer demand and value growth, we expect stronger resale returns in the months ahead.”
The report also highlights regional hotspots, such as Noosa, Busselton, Grant, and the Sunshine Coast, which delivered some of the most significant profit uplifts in Australia during the March quarter. In these areas, median resale profits exceeded $400,000, a substantial increase compared to five years ago.
Cotality’s report further reveals that houses continue to outperform units on a national scale. In the March quarter, 97.2 per cent of house resales delivered a profit, compared to 90.1 per cent of unit sales. “The difference in returns was striking over the March quarter, with the median gain on houses at $355,000, around 73 per cent higher than the $205,000 median gain for units,” the report states. Despite the disparity in gains, the median loss was nearly identical for both houses and units, at $45,000 and $44,000, respectively.
As the property market braces for these changes, both buyers and sellers must navigate a landscape defined by rising prices and shifting economic conditions. While first-home buyers face mounting challenges, sellers stand to benefit significantly from the anticipated boom.