Australian property finished 2025 on a strong footing, with more than $70,000 being added to the national median home value. In some markets, it was far more.

While solid growth continued in December, a distinct two-speed trend has emerged, with two of the country's major cities posting a slight decline while others surged. 

As we move into 2026, the market is being defined by a flight toward affordability, where a chronic shortage of listings supports price growth even as high interest rates and cost-of-living pressures begin to weigh on consumer confidence.

Australian property prices: December 2025

National property values rose +0.7 per cent in December, capping off a particularly strong year totalling gains of +8.6 per cent, according to Cotality's latest report. 

Sydney and Melbourne, however, saw a nominal decline in prices over the month, both dipping -0.1 per cent — their first drop since before interest rates began falling in February 2025.

In contrast, Brisbane, Adelaide and Perth all had another stellar month, with the latter two coming close to a +2.0 per cent gain. 

Hobart continued to rally, posting a +0.9 per cent uplift; Darwin carried strong momentum with another +1.6 per cent rise; and Canberra saw a minor bump of +0.2 per cent. 

Regional markets had an especially strong December, delivering double the growth of the combined capitals. Regional NSW and Victoria in particular clearly outpaced their capital city counterparts, with gains of +0.7 per cent and +0.8 per cent respectively. 

Cotality's research director, Tim Lawless, explained that "Renewed speculation that the rate-cutting cycle is over and the next move from the RBA could be a hike has dented housing confidence." 

He added that "A ‘higher for longer’ setting on interest rates, alongside a resurgence in cost-of-living pressures and worsening affordability pressures, looks to have taken some heat out of the market."

Three key takeaways from the current market

A number of property trends have become more firmly entrenched, while other shifts are now just emerging as 2026 begins. Here are the headline issues worth tracking. 

Entry-level properties are enjoying the bulk of price gains

For many Australians, still-high interest rates and even higher home prices mean buyers are searching for more affordable ways to get onto the property ladder. 

There has been a notable shift among buyers looking for better value. Cotality’s latest data shows that prices for entry-level homes rose by 1.1 per cent in December, compared to just a 0.2 per cent gain for the most expensive properties. 

A mix of first home buyers, investors, and regular homeowners are all competing for the same smaller pool of affordable homes, a dynamic which has been exaggerated by the federal government's October 1st changes to the Home Guarantee Scheme. 

Mr Lawless explained that "This trend, where upper quartile values have recorded a lower rate of growth, has played out across every capital city through the year, as affordability and serviceability pressures deflect demand towards the lower price points."

With so much competition and not enough homes to go around, these entry-level properties are likely to stay in high demand as the new year unfolds.

Two-speed market conditions have re-emerged

While the national property market looks strong on paper, we're starting to see a real two-speed trend where different parts of the country are heading in varying directions. 

For the first time since rate cuts began early last year, Sydney and Melbourne home values actually dipped slightly in December. On the other hand, the mid-sized capitals are still surging ahead.

This split is a classic sign of a fragmented market, where the largest cities are hitting an affordability ceiling while other regions still have room to grow, particularly with interstate migration and growing investor activity helping to drive markets like Brisbane and Perth.

Mr Lawless noted that this softening in the bigger cities might be setting the stage for a quieter 2026, particularly if further interest rate cuts are off the table.

For sellers in Brisbane, Perth, or Adelaide, conditions remain very much in their favour, while in Sydney and Melbourne, things are becoming a bit more balanced between buyers and sellers. 

Listing shortages continue to drive growth in spite of poor affordability

While higher interest rates and cost-of-living pressures are still creating challenges for buyers, a major reason we aren't seeing prices fall across the board is the ongoing lack of homes for sale. 

In many parts of the country, the number of available listings is still well below what we’d usually see for this time of year. This "structural undersupply" is acting as a natural safety net for property values. 

Even though affordability is stretched to record levels — with the typical household now needing 11 years to save for a deposit — the sheer lack of choice for buyers is keeping the pressure on prices.

Mr Lawless pointed out that this shortage is a key reason the market remains so resilient. He noted that "Persistently low levels of stock, both from new builds and existing listings, should act as a buffer against price falls" throughout 2026.

This means that despite the headlines about a cooling economy, the lack of competition from other listings often works in favour of sellers. Until we see a significant increase in the number of homes hitting the market, this mismatch between supply and demand is likely to keep a floor under home values.

What's next for Australian property?

Looking ahead, 2026 is likely to see the property market move into a "softer landing" phase after the surprisingly strong gains we saw last year. 

While there is still the expectation of home values rising, the pace will likely be more modest as sticky inflation lowers the chances of any further interest rate cuts. 

The supply-demand mismatch remains the biggest factor working in the market's favour. As there simply aren't enough homes being built or listed to meet demand, this ongoing shortage should act as a natural buffer that keeps prices from trending significantly lower.

Cotality's report pointed out that while there are certainly risks on the horizon, the market remains quite resilient. "Structural undersupply and targeted stimulus should help stave off a material correction," the report stated, which would help the market hold its ground despite the broader economic headwinds.

This means that, while the market might not be booming in every single city, the lack of competition from other listings still broadly puts sellers in a strong position as we move further into 2026.