What does the 2026 budget mean for prices and rents?

What does the 2026 budget mean for prices and rents?

Every few months the major banks and property economists release their forecasts and the headlines that follow make it sound like the market is either about to crash or take off. The reality is almost always more measured than either extreme.

Here is what the leading forecasters are saying about Australian property through 2026, 2027, and 2028, what those numbers mean in practice, and why the market you are investing in matters far more than the national headline figure.

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What REA Group's Senior Economist Is Forecasting

Angus Moore, senior economist at REA Group, expects home prices to finish 2026 largely flat across the combined capitals. His view is that higher interest rates and stretched affordability will produce soft to falling prices through the back half of 2026 before a turning point and return to growth late in the year and into 2027.

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For 2027, REA Group is forecasting price growth of approximately 5.5% nationally, slightly below the long-run average of around 7%, reflecting ongoing affordability pressures and reduced investor demand following the budget changes.

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The combined capitals are currently tracking at approximately 6.4% year on year to May 2026. The forecast is essentially for that momentum to slow through the remainder of the year before recovering.

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What Westpac Is Forecasting

Westpac's forecasts broadly align with REA Group on direction if not on magnitude. They are expecting flat to negative growth nationally in 2026 with recovery in 2027 of 2 to 5%.

Where Westpac is more bullish on Brisbane, Perth, and Adelaide. Their expectations for those markets remain elevated even through the period of broader softness. On a $800,000 property in Perth, 10% growth represents $80,000 in additional value. A further 5% in the following year adds another $40,000 to $50,000. That is $120,000 to $130,000 in growth during a period when the headlines are talking about the worst conditions in decades.

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Why Sydney and Melbourne Are Different to Every Other Market

National property forecasts are heavily shaped by Sydney and Melbourne. According to the Domain Forecast Report FY2027, Melbourne is expected to see house price falls of 4 to 8%, Sydney 3 to 7%, and Canberra flat to down 4% over the year to June 2027.

That is being averaged against Perth forecast to rise 5 to 9%, Adelaide 4 to 8%, and Brisbane 3 to 7%. The same report forecasts unit prices in Perth to surge 7 to 11%.

Sydney and Melbourne are more sensitive to rate movements because buyers there tend to borrow more and price points are higher. When rates rise, fewer buyers can transact at those levels. When rates fall, demand floods back sharply.

Within both cities, headline medians are distorted by premium suburbs. A correction at the top end does not mean every suburb is falling. The only way to understand what is actually happening is at the suburb level, not the city level.

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The Window Problem Most Investors Underestimate

By the time you decide to buy, arrange finance, set up structures, find a property, and settle, you are looking at four to five months minimum. If you are waiting for a dip, the market may already be recovering by the time you get the keys.

On a $700,000 property growing at 5 to 7% annually, every year of waiting costs between $35,000 and $49,000 in foregone capital growth. The cost of hesitation is not zero.

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What the Budget Means for Prices

The REA Group forecast incorporates the expected housing market impact of the 2026 budget changes. Their modelling suggests:

• Prices may see a small decrease in the short term
• Transaction volumes may see a small increase initially
• Rents are expected to increase
• New supply is expected to remain largely unchanged

In the medium term, prices are expected to increase but at a slightly lower rate than they would have without the changes. In the long term, the same dynamic applies, prices grow but slightly below what they otherwise would have been, largely because replacement costs remain elevated and builders continue to face margin pressure that limits new supply.

The more significant near-term impact is likely on transaction volumes rather than prices. Uncertainty suppresses activity. When buyers and sellers are unsure of the rules, they wait. Fewer transactions mean less stamp duty revenue for state governments, which creates its own political pressure to revisit the policy settings.

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Rents Are About to Accelerate

Rents are the most overlooked consequence of the budget changes.

Fewer investors buying established properties means fewer rental properties added to a market already running at or near record low vacancy rates. When supply tightens in that environment, rents respond. The government's own modelling suggested a $2 per week increase. That figure is not credible. Historical precedent from 1985 to 1987 in Australia points to increases of 10 to 15% or more when investor supply is reduced in undersupplied markets. The situation today is more acute than any of those comparisons.

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Which Markets Are Worth Watching

Based on current forecasts and data, here is how the major markets are tracking:

Sydney and Melbourne are experiencing corrections of 3 to 4% through the softer period of 2026 before recovering into 2027. These are not crash conditions. They are normal cyclical adjustments in markets that ran hard and are now digesting rate rises and affordability pressure. Within both cities, affordable suburbs and markets with genuine rental demand are performing differently to the premium end.

Brisbane, Adelaide, and Perth continue to record strong growth. Annual growth rates of 8% in Brisbane, 13% in Adelaide, and 20% in Perth in the prior year are now moderating to more sustainable levels of 5 to 8%. Moderating from those levels is not a crash. It is a healthy transition to a growth rate that can be maintained over longer periods.

Regional markets continue to outperform capital cities on a combined basis. The affordability advantage, lifestyle appeal, and supply constraints in well-located regional centres are supporting continued demand from both owner-occupiers and investors.

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What This Means for Investors

The forecasts point to transition rather than collapse. Flat to slightly negative conditions in Sydney and Melbourne through the second half of 2026, recovery in 2027, and continued growth into 2028. Stronger conditions in Brisbane, Adelaide, Perth, and regional markets throughout.

For investors already in the right markets, this is consolidation not crisis. For those yet to enter, reduced competition and more motivated vendors create an entry environment that is more favourable than the headlines suggest.

The market you buy in matters more than the national forecast. The suburb matters more than the city. The asset matters more than both.

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Frequently Asked Questions

Will Australian property prices crash in 2026?
No. The Domain Forecast Report FY2027 expects Melbourne to fall 4 to 8% and Sydney 3 to 7%. Brisbane, Perth, and Adelaide are forecast to keep growing. A correction in two cities while others rise is a diverging market, not a crash.

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Is now a good time to buy investment property in Australia?
For well-researched markets, yes. Reduced competition and more motivated vendors create better entry conditions than the headlines suggest. Every year of waiting on a $700,000 property growing at 5 to 7% costs between $35,000 and $49,000 in foregone growth.

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Which Australian cities are forecast to grow in 2026 and 2027?
Perth leads at 5 to 9%, followed by Adelaide at 4 to 8% and Brisbane at 3 to 7% according to the Domain Forecast Report FY2027. Regional markets are also outperforming the combined capitals.

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Why are Sydney and Melbourne falling while other cities are growing?
Higher prices and larger mortgages make both cities more sensitive to rate movements. Brisbane, Adelaide, and Perth have more undersupplied markets with demand still ahead of supply, supporting continued growth.

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When is the property market expected to recover?
REA Group expects a turning point late in 2026. Domain's chief economist Dr Nicola Powell suggests a gradual recovery from mid-2027. Both expect 2027 to be stronger than 2026 nationally.

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Ready to Position Your Portfolio Ahead of the Recovery?

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.

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