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Sydney, Melbourne markets set for price drop
SQM Research has lowered its 2026 outlook, predicting a decline in Australia’s leading property markets, with both Sydney and Melbourne expected to see falling prices.
The change represented a turnaround from the firm’s previous forecasts, casting a gloomier outlook for the eastern capitals amid ongoing energy shocks, rising inflation, and the risk of additional Reserve Bank of Australia (RBA) rate increases.
Back in December, SQM Research predicted that national home values would rise a solid 6–10 per cent in 2026, with several capital cities expected to see double-digit growth.
Under the updated base case, with an assumed cash rate of 4.35 per cent by mid-2026 and inflation peaking at 4.4–5.0 per cent, capital city prices are now expected to grow by between 0 and 3 per cent.
The firm said that the new revisions reflected rising tensions in the Middle East, which could increase living costs, dampen buyer confidence, and lead to stricter monetary policy.
As of now, the four big banks all expect at least one more cash rate increase of 0.25 per cent in May, to 4.10 per cent, while Westpac and National Australia Bank (NAB) have forecast two increases, including one during the March meeting next week.
While the previous report had forecasted Sydney and Melbourne property markets to grow between 3 and 6 per cent and 4 and 7 per cent, respectively, those numbers are now negative.
According to the research firm, the eastern capitals are now expected to see a downturn, with Sydney projected to fall between 6 and 2 per cent and Melbourne between 4 and 1 per cent, driven by higher borrowing costs and slower migration.
Despite forecasting a small 2-3 per cent downturn, Perth and Brisbane will remain resilient and see prices increase by 7-13 per cent.
Similarly, Darwin could see its market increase by up to 16 per cent thanks to resource-driven demand.
Alternative scenarios show how sensitive the market is to interest rates and inflation.
If the cash rate rises aggressively to over 4.5 per cent and CPI reaches 5.5 per cent or more, SQM modelling showed that growth could fall to a weighted average of 1 to 3 per cent, while lower or steady rates around 3.85–4.1 per cent could lift growth to 2 to 7 per cent.
SQM Research managing director Louis Christopher said the updated forecasts reflect a cautious view, with rising energy-driven inflation likely to slow rate cuts and dampen housing demand.
“While resource-heavy markets like Perth and Darwin hold firm, the downgrades in Sydney and Melbourne highlight vulnerability to higher rates.”
“If shocks persist, we could see even softer outcomes, though fiscal measures like energy rebates might provide a buffer. Investors should monitor RBA signals closely amid these uncertainties,” Christopher concluded.
