As demand outstrips supply pressure mounts on housing prices
Selling conditions are on the up for vendors in Australia’s capitals
3 min
Not that long ago, Australia was in the midst of the fastest drop in housing values on record, as rapidly increasing interest rates caused capital city values to plunge more than 9 percent in the space of about 10 months.
That’s all changed since hitting a low in February, with three consecutive months of positive growth in housing values due to a significant imbalance between supply and demand. So, less than a week out from winter, what’s the outlook for Australia’s property market?
Resilience: Competition is rife
There’s not a lot of competition in the market for vendors currently with decade-low listing numbers. It’s one of the reasons selling conditions have strengthened, as evidenced by above average clearance rates, faster selling time and less negotiation. For context, the total number of homes listed for sale nationally is tracking 28 percent below usual. When listing volumes are very low, selling conditions strengthen, which means potential vendors thinking about selling may well be tempted to list now rather than waiting until the traditional spring period, when activity surges and there’s a spike in competition to sell.
Rising prices: Sustainable or not?
Home values for the four largest capital cities all recorded an increase in housing values from the lows recorded in February. A mid-month update based on CoreLogic Australia’s daily Home Value Index showed the upswing gathering momentum, especially in cities such as Brisbane where the index is up 1.0% over the past four weeks. Sydney however is still leading the charge. Considering housing affordability measures remain stretched such a strong rate of growth is surprising and probably unsustainable. Clearance rates: Low supply vs high demand
Auction clearance rates have been holding at 70% or higher in recent weeks and volumes are slowly on the rise at a time when they would traditionally start to drift lower. Coupled with the upwards pressure on housing values these signs suggest, if anything, the market is gathering momentum rather than slowing down. The stronger clearance rates along with other vendor metrics like faster selling times for private treaty sales and reduced discounting rates, indicate sellers are getting a little bit more leverage back.
Buyer motivation: Urgency and FOMO on the rise
Fear of Missing Out (FOMO) or buyer concern about being left behind was at its peak when the market was in full flight in 2021. While the trend is not back, yet, it does appear that some buyer demographics are highly motivated to get into the market. If the trend for low advertised stock
levels, rising clearance rates and higher values continues, it would not be surprising to see FOMO becoming more pervasive. As demand picks up against strong overseas migration and extremely tight rental markets, there’s likely to be some renters who try to fast track their purchasing decisions as well. The pool of available properties they’re competing for is the smallest it’s been in more than 10 years. A sense of urgency will likely play a part in some decision making over winter.
Challenges: Interest rates and market sentiment
Demonstrating an ability to service a loan is going to be one of the biggest hurdles that prospective buyers will face this year. Interest rates are high, but assessment levels are three percentage points higher again. However, qualifying for the loan is only one challenge. We can’t ignore low consumer sentiment levels, which will also be having some dampening effect on the market’s current exuberance and we shouldn’t expect to see a material lift in property activity until there’s an improvement in consumer confidence more broadly.
Wavering confidence: Economic uncertainty
If the RBA were to cut interest rates there is a good chance we would see a lift in consumer spirits, accompanied by a substantial pick up in both buyer and selling activity. Logically, lower interest rates would be the catalyst for a further uptick in housing values. Of course, we’re not expecting a rate cut anytime soon and there’s speculation that rates may even rise a little bit further this year. Economists are split on their forecasts with predictions for further rate hikes, some stability and some cuts later this year. All of this is likely to be adding to uncertainty and low consumer confidence levels, however any reduction in rates will likely be the cue for more buyers and sellers to become active again.
Homeowner resilience: Mortgage repayments remain steady
We would be naive to think there isn’t going to be a rise in motivated selling or increase in mortgage arrears in the short to medium-term. However, coming off record low rates, most banks were reporting 90-day arrears rates of around 0.5% to 0.6% at the end of 2022. That benchmark is set to increase, however most homeowners or borrowers will do their best to pull back sharply on discretionary spending before missing mortgage repayments or selling their home.
After winter, what’s next?
Spring 2023 is going to be interesting. Historically, it’s the season for new listings and sales transactions, but that activity didn’t materialise for spring last year. There’s possibly some accrued supply building up from people who have been thinking about selling but holding back, and if the market remains relatively buoyant we could see a very active spring this season. A material increase in advertised supply could dampen values and clearance rates as more homes come on the market.
Tim Lawless is Research Director at CoreLogic Asia Pacific
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Strong consumer spending and tight supply have driven retail to the top of commercial property, but signs of pressure are starting to emerge.
2 min
Australia’s retail property sector entered 2026 as the strongest performing commercial asset class, but rising geopolitical risks and cost pressures are beginning to test its resilience, according to new research from Knight Frank.
The latest Australian Retail Review shows the sector rode a wave of consumer spending and constrained supply through 2025, delivering total returns of 9.2 per cent and driving transaction volumes up 43 per cent year-on-year to $14.4 billion.
That momentum carried into early 2026, with around $3.6 billion in deals recorded in the first quarter alone.
“Retail clearly emerged as the standout commercial property performer in 2025,” said Knight Frank Senior Economist, Research & Consulting Alistair Read.
“Improving household spending, limited new supply and stronger leasing fundamentals combined to drive better income growth and renewed investor confidence in the sector.”
Spending rebound drives retail strength
A lift in household spending has been central to the sector’s performance. Consumer spending rose 4.6 per cent year-on-year to February 2026, supported by easing inflation and improving real incomes.
That shift flowed directly into retailer performance, with average EBIT margins across major retailers rising to 8.9 per cent in the first half of 2026, their strongest level in several years.
“Stronger consumer spending was critical in restoring momentum to the retail sector,” Mr Read said.
“Retailers have generally been better able to absorb costs, rebuild margins and support sustainable rental outcomes, particularly in higher-quality centres.”
Improved trading conditions also pushed leasing spreads up 4.2 per cent in 2025, reinforcing income growth and supporting capital values.
Geopolitical tensions begin to bite
But the outlook has become more complicated. The report warns that escalating conflict in the Middle East and its impact on fuel prices, supply chains and interest rates could weigh heavily on consumer spending.
“Higher fuel prices, flow-on cost pressures across supply chains, and recent interest rate increases are collectively squeezing household budgets, and early consumer sentiment data suggests confidence is already softening,” Mr Read said.
“While household balance sheets remain generally resilient, heightened uncertainty over future costs is likely to weigh on spending — particularly in discretionary categories — in the months ahead.”
The impact is already being felt in investment activity. While the year began strongly, transaction volumes slowed in March as investors paused amid the uncertainty.
“Early indicators suggest elevated uncertainty has already begun to affect the market. While retail investment enjoyed its strongest start to a year in a decade, with nearly $3 billion transacted by the end of February, activity stalled in March, as investors took a pause amid elevated uncertainty,” Mr Read said.
Solid foundations support medium-term outlook
Despite the near-term headwinds, Knight Frank maintains that the sector’s underlying fundamentals remain strong. Limited new supply, high construction costs and population growth are expected to continue supporting rental growth over the medium term.
“Retail has entered this period of uncertainty from a position of strength,” Mr Read said.
“Supply-side constraints, population growth and improving income fundamentals remain powerful structural supports for the sector.”
The report highlights several trends shaping the year ahead, including steady yields as interest rates rise, mounting pressure on tenant margins, continued outperformance of prime centres, the growing need for logistics integration, and risks linked to underinvestment in capital expenditure.
For now, retail remains a sector with momentum, but one increasingly at the mercy of forces far beyond the shopping centre.
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