Just a few months ago, the 2026 property outlook looked reasonably settled as inflation was cooling and further interest rate cuts were on the horizon.

Then the conflict in the Middle East changed everything, spiking oil and energy prices in a matter of weeks, forcing the Reserve Bank to reverse course with two surprise rate hikes — and potentially more to come.

Find out what these sudden shifts mean for Australian property and why there's still reason for confidence in the market.

The forecasts have changed — and the picture is still evolving

Last month, SQM Research took the unusual step of revising its annual Boom and Bust Report forecasts mid-cycle in response to the sudden market shakeup.

SQM's Louis Christopher proposed a new set of possible scenarios for the year ahead, with his base case assuming the cash rate hitting 4.35 per cent mid-year as inflation finds a new peak. 

Under that scenario, Mr Christopher now forecasts national capital city dwelling prices to grow somewhere between 0 and +3 per cent for the full year — down from the +6 to +10 per cent forecast published in November.

The big four banks are broadly on the same page when it comes to interest rates. ANZ, NAB, and CBA all expect one more rate hike in May, bringing the cash rate back to its previous peak of 4.35 per cent. 

Westpac is the hawkish outlier, forecasting three more hikes across May, June, and August — which would push the cash rate to 4.85 per cent, a level not seen since 2008.

The path forward for interest rates and property price growth is closely tied to the inflation outlook which, given the level of volatility we're seeing around the Middle East, is something even the most credible forecasters can't meaningfully pin down. 

However, independent property economist Cameron Kusher added some important context about where the problem actually started.

"It would be easy to point the finger here at the Middle East situation, and it is going to exacerbate these issues the longer it continues," he said. "But the reality is that inflation was too high before this situation arose."

Some markets are feeling it more than others

The rate environment doesn't hit every market the same way, and SQM's revised forecasts reflect that clearly.

Sydney and Melbourne are expected to bear the brunt of further rate rises. Both cities have historically moved more sharply in response to rate changes, and this cycle looks to be no different. SQM's base case puts Sydney at between -2 and -6 per cent for the year and Melbourne at -1 to -4 per cent.

Perth, Brisbane, Darwin, and Adelaide are a different story. These markets benefit directly from the same commodity price surge that is driving inflation nationally, with higher oil, gas, gold, and coal prices flowing through into local wages, royalties, and employment — providing a real economic buffer against the rate headwind.

There's also a demand dynamic worth keeping in mind across all markets. As borrowing capacity tightens, buyer competition tends to concentrate at the more affordable end of the market, which can be good news for sellers in that segment. 

With rental vacancy rates sitting at just 1.1 per cent nationally — one of the tightest readings on record — a growing number of tenants are also feeling the pressure to buy rather than keep competing for a shrinking pool of rentals, adding further weight to demand at the entry level.

The longer-term picture for sellers remains intact

For all the uncertainty in the current headlines, there's data that puts things in perspective.

Domain's 2026 Profit and Loss Report found that 97.5 per cent of house sellers across Australia made a profit in the second half of last year — a record-high ratio. 

The median house resale profit nationally was $440,000, with Sydney at $750,000 and both Brisbane and Perth recording record medians of $580,000 and $528,000 respectively.

These profits weren't generated by people who timed the market perfectly. As the Domain report notes, the typical Australian property owner holds for around nine years before selling — long enough to ride through multiple rate cycles, including ones that looked a lot like this one.

Mr Kusher's longer-term read is worth keeping in mind, too. "While the impact of higher inflation and higher interest rates for longer is likely to be lower housing prices...longer-term these conditions are likely to sow the seeds of the next surge in housing prices," he said.

The current environment is genuinely challenging, particularly in Sydney and Melbourne where buyers are more cautious and the market has less room for overpricing. 

For most sellers, though, the years already spent in the market have done a lot of the hard work. A realistic price and a strong local agent matter more right now — not less.