What CBA and Westpac Are Forecasting for Australian Property in 2026

Consumer Confidence Is at a 50-Year Low

The Roy Morgan Consumer Confidence Index has recorded its eighth lowest reading in over 50 years, with the latest reading sitting at 66.1.

To put that in context, readings in the 60s represent mass fear. The index has been largely positive, staying above 100 for most of the past three decades with the exception of the 1990s recession, the GFC, and the early COVID period. What we are seeing in 2026 is historically significant.

The reasons are layered. Geopolitical instability. Rising fuel and energy costs. A cost of living crisis that has been building for years. Rental affordability at record lows. Budget uncertainty around negative gearing and CGT changes. Three consecutive RBA rate hikes. Any one of these alone would weigh on confidence. All of them together have produced a sentiment environment that has not been seen in living memory for most Australian investors.

For serious investors, this is exactly the environment worth paying attention to. Historically, the periods of maximum fear and minimum competition have consistently been the best entry points the market produces. That pattern has held through every major cycle in Australian property history.

‍

What CBA Is Forecasting

Commonwealth Bank has updated its housing price growth outlook in response to the combined effect of higher mortgage rates, the federal budget policy changes, and broader economic uncertainty.

The updated CBA forecast:

• Dwelling price growth is expected to slow to 3% over the year to December 2026, down from a previous estimate of 5%
• Growth over the year to December 2027 remains forecast at 3%

The bank has broken down the factors driving the slowdown:

• Three cash rate hikes this year have subtracted 1.5 percentage points from the 2026 price growth forecast
• The removal of negative gearing on established housing and the replacement of the CGT discount with indexation and a 30% minimum tax rate are estimated to subtract a further 0.6 percentage points from annual price growth by the end of 2026 and just under 1 percentage point from 2027 growth
• An expected easing of population growth is forecast to subtract a further 0.8 percentage points from the 2027 outlook

The key takeaway from the CBA forecast is not that prices will fall. It is that the pace of growth will moderate. Prices are not forecast to decline. They are forecast to grow more slowly than they have over the past two years.

For investors focused on a 10 to 20-year time horizon, a period of slower growth is not a crisis. It is a consolidation phase that typically precedes the next leg up.

‍

What Westpac Is Reporting

Westpac's investor report paints a picture of a market that remained exceptionally active through 2025 and continues to attract strong investor participation.

Key findings from the Westpac report:

• Investor new housing lending nationally reached 41% of all new lending, up 23 percentage points from December 2020 and the highest level since 2004
• In New South Wales, investor lending sits at 44%, the highest level since 2017 and up 15 percentage points
• In South Australia, investor lending is at near record highs, up approximately 13 percentage points
• More than 93% of recent investor sales made a profit
• Rental vacancy rates remain critically tight in Brisbane and Perth, with some specific suburbs sitting at or near 0%

Westpac's price growth forecast shows national prices grew 8% in 2025, with a forecast of 5% growth through 2026 under base case assumptions.

The Westpac report also highlights the dynamic that matters most for long-term investors. As price growth slows, rental yields begin to recover. Properties that were yielding 6.5% before the last growth cycle compressed to around 4% are now starting to trend back toward 5% as rents continue rising while prices consolidate. That yield recovery is what brings investors back into markets at scale, and when they return, the next growth phase begins.

‍

The Recession Question

The honest assessment of the current economic environment requires addressing the question most commentators are avoiding directly: is Australia heading toward a recession?

When GDP growth per capita turns negative for consecutive quarters, the definition of a recession is met even if unemployment remains stable. With borrowing capacity compressed by rate hikes, consumer spending contracting, and business confidence declining alongside household confidence, the conditions that typically precede a recession are present.

If a recession does occur, the response is predictable. The RBA cuts rates. Borrowing capacity recovers. Demand returns to the property market. The supply that was not built during the high-rate period is not there to meet that demand. Values respond quickly from a tighter supply position.

The important point is that even in a recessionary environment, the marginal buyer is still active. Not every Australian is in financial difficulty. The investors with strong balance sheets, low debt-to-equity positions, and quality assets in the right markets continue to transact. They are the ones setting prices at the margin. As long as they are buying in a supply-constrained environment, prices hold or continue rising at a slower pace rather than collapsing.

‍

What This Means for Investors Right Now

The picture that emerges from combining the consumer confidence data, the CBA and Westpac forecasts, and the on-the-ground rental market dynamics is complex but clear.

Price growth is moderating. Competition is easing. Vendor motivation is increasing in some markets. Negotiating conditions are the most favourable they have been in several years for buyers who are prepared to act.

At the same time, the structural forces that have driven Australian property values for decades remain firmly in place. Record migration continues to pressure the rental market. Housing supply is not keeping pace with demand. Construction costs are elevated and rising. The budget changes will reduce the flow of new investors into the established property market, which tightens rental supply further and pushes rents higher.

For investors with the right assets, the right structures, and the right buffers in place, this environment is not a reason to pause. It is a reason to act with precision while others hesitate.

The market has been here before and it has always recovered. The investors who move during the consolidation phase consistently enter at better prices than those who wait for confirmation that the market is moving again.

‍

Ready to Build a Portfolio Built for This Market?

At Search Property, we help Australians cut through the noise and build data-driven investment strategies aligned with long-term wealth goals. Our buyers agents have helped thousands of clients build wealth through property because we focus on fundamentals, not headlines.

Book a FREE Investment Assessment call with Search Property. We'll discuss your goals and position, and help you build a clear plan to move forward with confidence.