Buyer demand has remained strong at auctions for cheaper properties. Picture: Max Mason-Hubers
Sydney home prices are forecast even more growth over 2026 and 2027 despite rising uncertainty over the direction of interest rates and crippling housing affordability.
KPMG’s latest Residential Property Outlook report predicts the Harbour City will record an average 5.8 per cent lift in house prices and a 5.3 per cent rise in units prices over 2026.
This growth would be below the 7.7 per cent growth expected nationally over the year and below the nearly 7 per cent jump in Sydney dwelling values over 2025.
The global financial advisory group forecasts an additional 5.7 per cent average rise in Sydney house prices over 2027 and a 4 per cent increase in unit prices over the same year.
Further home price growth was expected primarily because not enough Sydney homes were being listed, or built, to match buyer demand.
Analysis of the KPMG projections using PropTrack data showed buyers could be paying staggering prices by the end of 2027.
With Sydney’s median house price already at $1.62m, KPMG’s forecast growth would add a total $192,128 to the typical cost of buying a house, stretching the median to just over $1.81m.
A median priced Sydney house could cost over $1.8m by 2027.
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Forecast unit price growth would push the current median up nearly $84,000 from $880,000 to today to about $964,000 by the end of 2027.
KPMG’s forecasts assumed interest rates remained level, but the group’s chief economist Brendan Rynne said even a 0.25 per cent rate rise would not materially alter the trajectory of the market.
“Sydney is more affected by interest rates than other cities because the (market) fundamentals are more imbalanced, but a rate rise would not push down prices,” he said.
The ASX’s RBA Rate Tracker showed markets were factoring in a 56 per cent chance of an interest rate change at the next RBA board meeting in February, but Dr Rynne said he was more doubtful.
Dr Rynne said there was a strong case for keeping rates on hold because jobs growth in the economy was sluggish, despite low unemployment, and inflation was dropping by some measures.
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Unit prices could average about $964,000 by 2027.
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“With a whole range of other uncertainties it would be appropriate for the RBA to sit on its hands,” he said.
KPMG revealed home prices had the potential to keep rising upward even amid various economic headwinds because buyer demand far exceeded available housing supply.
Much of Sydney continues to have a chronic housing shortage – one likely to persist due to lingering challenges in the building industry, KPMG added.
Housing supply did not match the current rate of population growth, which remained strong even with a recent drop in migration numbers, the group noted.
Government incentives such as the First Home Guarantee Scheme were putting additional pressure on the already constrained supply of housing by encouraging more people to buy, the report said.
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KPMG chief economist Brendan Rynne said Sydney’s market fundamentals were imbalanced. Picture: Alan Barber
Dr Rynne said the scheme had pushed up prices at a time when affordability constraints should have moderated growth in many areas, but he noted this effect was more muted in Sydney.
“The strong momentum in the first half of 2025 should have moderated as affordability pressures continued to spook buyers,” Dr Rynne said. “Instead, the second half of last year accelerated growth further.”
PropTrack data revealed Sydney prices grew by an average of close to 7 per cent over 2025.
PropTrack economist Eleanor Creagh said continued growth in prices was expected over 2026 because of rising building costs, delays in the new supply pipeline and an imbalance of supply and demand.
Ray White chief economist Nerida Conisbee said growth could be moderated by the threat of rising interest rates, which would cause homebuyers to be more cautious with their offers.
But she added that growth should continue to be strong at the most affordable end of the market.
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