Australian House Prices Retreat for First Time in Nearly Two Years
House prices rose 4.9% in 2024, but December registered a 0.1% drop
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SYDNEY—Australian house prices recorded their first monthly decline in almost two years in December, but relief for the market appears close amid growing speculation that the Reserve Bank of Australia will start cutting interest rates from February.
House prices rose 4.9% in 2024, but December registered a 0.1% drop, the first since January 2023, according to property research group, CoreLogic.
The month saw deepening price falls in Melbourne and Sydney, the country’s two biggest property markets, while other state capitals also showed signs of weakening.
A national housing shortage and falling unemployment are lending some support to house prices, but elevated interest rates, poor affordability levels and low confidence are now taking a toll on the market.
“The decline in values is no surprise,” said CoreLogic’s research director, Tim Lawless. “This result represents the housing market catching up with the reality of market dynamics.”
“Growth in housing values has been consistently weakening through the second half of the year, as affordability constraints weighed on buyer demand and advertised supply levels trended higher,” he added.
There is widening evidence of weakness in the property market, with auction activity cooling from their highs, particularly in Sydney where successful sales at auctions have fallen to just above 50% of properties listed.
Still, the tide could turn again for house prices, after the RBA indicated in December it is growing more confident that inflation will soon return to target, paving the way for the start of interest rate cuts.
Economists are forecasting another year of modest gains for house prices, with the pace of increase largely dictated by the timing and extent of RBA rate cuts.
The RBA kept the official cash rate steady at 4.35% through 2024, putting it at odds with many of the world’s major central banks that have cut aggressively.
A shortfall in housing supply is also expected to remain significant for a long while yet, with the accumulated shortfall now estimated at around 200,000 homes, said Shane Oliver , chief economist at AMP.
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The 2026 McGrath Report warns that without urgent reforms to planning, infrastructure and construction, housing affordability will continue to slip beyond reach for most Australians.
3 min
Australia’s housing market has reached a critical juncture, with home ownership and rental affordability deteriorating to their worst levels in decades, according to the McGrath Report 2026.
The annual analysis from real estate entrepreneur John McGrath paints a sobering picture of a nation where even the “lucky country” has run out of luck — or at least, out of homes.
New borrowers are now spending half their household income servicing loans, while renters are devoting one-third of their earnings to rent.
The time needed to save a 20 per cent deposit has stretched beyond ten years, and the home price-to-income ratio has climbed to eight times. “These aren’t just statistics,” McGrath writes. “They represent real people and real pain.”
McGrath argues that the root cause of Australia’s housing crisis is not a shortage of land, but a shortage of accessibility and deliverable stock.
“Over half our population has squeezed into just three cities, creating price pressure and rising density in Sydney, Melbourne and Brisbane while vast developable land sits disconnected from essential infrastructure,” he says.
The report identifies three faltering pillars — supply, affordability and construction viability — as the drivers of instability in the current market.
Developers across the country, McGrath notes, are “unable to make the numbers work” due to labour shortages and soaring construction costs.
In many trades, shortages have doubled or tripled, and build costs have surged by more than 30 per cent, stalling thousands of projects.
Need for systemic reform
McGrath’s prescription is clear: the only real solution lies in increasing supply through systemic reform. “We need to streamline development processes, reduce approval timeframes and provide better infrastructure to free up the options and provide more choice for everyone on where they live,” he says.
The 2026 edition of the report also points to promising trends in policy and innovation. Across several states, governments are prioritising higher-density development near transport hubs and repurposing government-owned land with existing infrastructure.
Build-to-rent models are expanding, and planning reforms are gaining traction. McGrath notes that while these steps are encouraging, they must be accelerated and supported by new construction methods if Australia is to meet demand.
One of the report’s key opportunities lies in prefabrication and modular design. “Prefabricated homes can be completed in 10–12 weeks compared to 18 months for a traditional house, saving time and money for everyone involved,” McGrath says.
The report suggests that modular and 3D-printed housing could play a significant role in addressing shortages while setting a new global benchmark for speed, cost and quality in residential construction.
Intelligent homes
In a section titled Weathering the Future: The Power of Smart Design, the report emphasises that sustainable and intelligent home design is no longer aspirational but essential.
It highlights new technologies that reduce energy use, improve thermal efficiency, and make homes more resilient to climate risks.
“There’s no reason why Australia shouldn’t be a world leader in innovative design and construction — and many reasons why we should be,” McGrath writes.
Despite the challenges, the tone of the 2026 McGrath Report is one of cautious optimism. Demand is expected to stabilise at around 175,000 households per year from 2026, and construction cost growth is finally slowing. Governments are also showing a greater willingness to reform outdated planning frameworks.
McGrath concludes that the path forward requires bold decisions and collaboration between all levels of government and industry.
“Australia has the land, demand and capability,” he says. “What we need now is the will to implement supply-focused solutions that address root causes rather than symptoms.”
“Only then,” he adds, “can we turn the dream of home ownership back into something more than a dream.”
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