Auction demand was strong over much of 2025, but the market has been moderating in recent weeks. Picture: Julian Andrews.
Panic over looming interest rate hikes has slammed the brakes on the once soaring housing market, with prices recording modest gains in medium-sized capitals while falling in Sydney and Melbourne.
PropTrack’s monthly Home Price Index showed Australian dwelling prices, based on sales of units, townhouses and houses, grew 0.1 per cent over December – the slowest rate in close to a year.
National prices had been growing strongly in the preceding months, with the median price of a home up 8.8 per cent, or $82,200, on what it was at the start of 2025.
Experts revealed the market had been losing gusto since higher than expected inflation figures in November nuked any chance of further RBA cash rate cuts and made rate rises in early 2026 a possibility.
Homes are not being built fast enough to meet demand, and this may mitigate the changing interest rates environment.
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The shift was significant because this year’s three interest rate cuts – first in February, then in May and August – had increased buyer confidence and driven much of the gains in prices over 2025.
PropTrack noted this change meant slower home price rises were likely over 2026, with national growth expected to slow to about 5 per cent for the year.
Further, sustained price falls in major markets were unlikely because of ongoing housing shortages, still strong migration and government stimulus such as the First Home Guarantee Scheme, PropTrack said.
“The pace of growth is expected to slow,” the Home Price Index report said.
“Price growth in 2025 was supported by three rate cuts. This year, no further cuts are expected, and there is a possibility rates could rise if inflation persists.
The median price of a capital city home is now about $1m.
“Counteracting this headwind, however, is limited new housing supply and persistent demand. The Australian Government 5 per cent Deposit Scheme is also likely to support price growth by driving up demand, particularly at the more affordable end of the market.”
Adelaide topped Australian cities for price growth over December, recording median dwelling value growth of 0.8 per cent. Growth averaged 0.5 per cent in Brisbane and Perth.
All three cities have been a magnet for property investors this year due to the better affordability over larger capitals.
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Sydney and Melbourne were the weakest markets, with prices falling 0.3 per cent, while Canberra recorded average falls of 0.2 per cent.
Auctioneer Michael Garofolo, director of auction house Cooley, said the mere threat of another rate hike had been enough to make some buyers more cautious.
Mr Garofolo explained that this trend was particularly notable for higher priced properties where the buyers would be taking out larger mortgages.
Meanwhile, more affordable properties, especially those within the price cap for the government’s First Home Guarantee Scheme, remained hotly contested.
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