Around this time two years ago we posted an article "What’s in store for 2024" where we tried to look through the hour glass into the year ahead, so it’s time to have another go!
Inflation Shifts the Outlook
We discussed at the time the likelihood of further interest rate rises which had kicked off in May 2022 and by November 2023 the RBA had increased the cash rate for the 13th time to 4.35%. As it turns out that is where the increases in the cash rate stopped and although we speculated there could have been the possibility of more rate rises, it was very much predicated on economic factors such as containing inflation, the jobless rate, general consumption and the housing market. As it turns out there were no more changes to the cash rate throughout 2024 and the next change was not until February 2025 with the first decrease in the cash rate since November 2020. There have been a further 2 drops in May and August but the RBA has held steady since.
RBA’s Next Likely Move
The general consensus among economists up until late last year was the potential for further rate cuts in 2026, although this was cruelly dealt a blow with new economic data released in November showing an uptick in headline inflation to 3.4%, which is outside the RBA’s comfort zone of 2-3%. The main culprits driving the inflation rate have been higher energy, food and fuel costs although housing is also adding to the mix with rents continuing to grow. All of this means that the cash rate is likely to be held steady for an extended period, with the next movement likely to be a hike rather than a cut.
Housing Market in 2026
So what might be in store for the housing market this year? The housing market is primed to show continued growth with some stellar double digit growth numbers having already occurred post Covid, with Brisbane, Perth and Adelaide continuing to outshine the traditionally strong markets of Sydney and Melbourne, although Sydney continues to hold the number one spot of most expensive capital city. Price growth however will be predicated somewhat by the RBA cash rate decisions for 2026, although it may be a case of a growth rate of around 3-4% rather than 5-6%, without any rate rises.
Supply Driving Price
If house price growth does continue in 2026 it is likely to come off the back of supply constraints rather than interest rate movements. As with any market, if demand exceeds supply, then prices inevitably rise and housing supply in Australia is suffering some headwinds with new dwelling approvals consistently behind population growth, although there has been a recent uptick in approvals in some markets. Another issue appears to be turnover of existing housing stock, with listings dropping below pre-Covid levels (I know in the area where I live in Brisbane Northside, listings before Covid were around 120-140 dwellings whereas current listings are only around 52 dwellings on a well-known real estate site). So, housing supply is likely to be a critical factor in how well the market performs this year.