Despite rising interest rates and growing concerns about affordability, Australian home prices are kicking off 2026 with a surprising surge. In January alone, home values increased by 0.8%, continuing a pattern that has left both buyers and sellers wondering what’s next. While cities like Sydney and Melbourne are feeling the weight of slower growth, smaller cities are seeing significant jumps.
Home Prices on the Rise: What’s Driving the Growth?
In January, home values across Australia saw an uptick of 0.8%, which is higher than the 0.6% increase seen in December 2025. While this might seem like a good sign for the property market, it’s not quite as clear-cut as it appears. The Sydney and Melbourne markets — which usually lead the way — had only modest growth of 0.2% and 0.1%, respectively. This suggests that the country’s largest markets are starting to show signs of slowing down.
On the other hand, mid-sized capitals like Perth, Brisbane, and Adelaide are experiencing strong growth. Perth in particular had the biggest jump, with a 2.0% increase in January alone. Brisbane and Adelaide were slightly slower, but still posted solid gains of 1.6% and 1.2%, respectively, reports Savings. These cities continue to benefit from higher demand, especially from buyers who are priced out of Sydney and Melbourne.
Supply Struggles and Demand Pressures
One of the biggest factors contributing to the rising prices is the low housing supply. According to data from Cotality, the number of homes listed for sale was down by 19% compared to the previous year. This is making it harder for buyers to find homes, driving up competition and pushing prices even higher.
In particular, demand for affordable homes remains high, and this is driving growth at the lower end of the market. Tim Lawless, a research director at Cotality, pointed out that competition for affordable homes is particularly fierce, with first-time buyers and investors all vying for a limited number of properties. In fact, the lower price point is where we’re seeing the most activity, which is helping fuel price increases, even in markets that were expected to cool down.
The Impact of Rising Interest Rates
Despite all this growth, rising interest rates are still a major concern. The RBA’s interest rate hikes have made home loans more expensive, which means buyers’ borrowing capacity is shrinking. The RBA is widely expected to raise rates again in February, which could slow the momentum in the housing market, particularly for buyers who were already stretched thin.
However, according to Cotality, there is still enough demand to maintain growth. With low housing stock and strong competition, the property market is unlikely to experience a major crash in the short term. In fact, regional areas are continuing to see growth rates that outperform major cities, as more people are moving away from capital cities in search of more affordable housing options.
What Does 2026 Hold?
Looking ahead, it seems likely that home prices will continue their upward trend, at least for now. While interest rates could slow things down a bit, the supply-demand imbalance will likely keep the market competitive. The real question is how affordability will continue to evolve. If rates keep climbing, more Australians could find themselves locked out of the market, pushing demand even further into regional areas.
For buyers, this could mean a tougher road ahead. With limited inventory and rising rates, finding a home within budget is becoming increasingly challenging. For sellers, it’s still a seller’s market, but those in larger cities might not see the same explosive growth seen in smaller capitals.
Overall, it’s a mixed bag for the housing market in 2026, but for now, prices continue to rise as the supply struggle intensifies. Will the trend continue, or will rising interest rates and affordability constraints bring it all to a halt? Time will tell, but it’s clear that the market isn’t slowing down just yet.
