Steam comes out of the market as Australian property values cool
Stubborn inflation and just-out-of-reach interest rate cuts are the likely reasons for the softer end to the year, new data has revealed
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Australian capitals experienced their smallest rise in home values since January 2023, new data from CoreLogic has revealed.
The property data provider’s Home Value Index showed values rose by 0.1 percent over spring after 22 months of consecutive rises. CoreLogic predicted this could be close to the last rise in this cycle, with both the Sydney and Melbourne markets showing signs of cooling.
“The downturn is gathering momentum in Melbourne and Sydney,” said Tim Lawless, CoreLogic’s research director.“While the mid-sized capitals, which have dominated the growth cycle of late, are also losing steam.”
The trend was most obvious in Melbourne, with housing values recording drops in 10 of the past 12 months. Melbourne values fell by -1.0 percent in November, while Sydney experienced a fall of -0.5 percent. The report indicated that Sydney values had most likely peaked in August this year.
Some of the smaller capitals were also showing signs of a weakening in values, with Darwin down -0.7 percent and Canberra recording a drop of -0.3 percent.
“The mid-sized capitals and most of the regional ‘rest of state’ markets continue to provide some support for growth in the national index, but it is clear momentum is also leaving these markets,” added Mr Lawless.
However, it was a different story on the other side of the country, with Perth home values experiencing further growth. CoreLogic data showed values in the Western Australian capital up 1.1 percent over the month and 3.0 percent over the quarter. While the increases in values were the strongest amongst the capitals, CoreLogic noted that they were less than half that recorded in the June quarter, where they were at a robust 6.7 percent.
Mr Lawless pointed to a lack of movement in core inflation, as well as the diminishing likelihood of an interest rate cut early next year as factors in the subdued capital gains. Leading Australian economists are predicting a cut somewhere between February and May 2025.
“A lower cash rate will be a positive factor for housing markets,” Mr Lawless said. “Lower mortgage rates will provide a lift to borrowing capacity, and, along with lower inflation, should see an improvement in serviceability assessments and see a further rise in consumer sentiment.”
“A couple of rate cuts might be enough to shore up a declining trend in home values, but it is hard to see any material upward pressure returning until interest rates reduce more substantially and affordability barriers are less formidable.”
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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.
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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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