Australia's housing market is heading for a correction this year, with KPMG forecasting national house prices to fall 1.1% through 2026 before rebounding 3.4% in 2027, according to the firm's latest Residential Property Market Outlook.
The report points to three consecutive cash rate increases, renewed inflation pressure linked to the Iran conflict, and changes to capital gains and negative gearing treatment announced in the 2026–27 federal budget as the key drags on sentiment. KPMG said these factors "resulted in a significantly softer housing market than previously anticipated."
House prices grew 5.5% and unit prices 6.6% nationally in the year to the June quarter, but this represented a clear slowdown from the 9.1% annual growth recorded in late 2025. Sydney, Melbourne, and Canberra are expected to record price falls this year, while growth moderates sharply in Brisbane, Perth, and Adelaide after several years of outsized gains. Darwin is tipped to remain the strongest performer.
For brokers, the report flags that transaction volumes are likely to shrink further as existing investors hold onto properties to preserve grandfathered tax benefits, potentially tightening the supply of established homes even as buyer demand cools.
The next test of that rate track comes on 11 August, when the RBA hands down its next cash rate decision. Most major lenders now expect a hold for the remainder of 2026, while Westpac remains an outlier, forecasting a further hike.
Despite the near-term softening, KPMG maintains that underlying fundamentals remain strong. The report notes that "population growth remains steady, rental vacancy rates are near historic lows, and housing supply continues to lag underlying demand." KPMG forecasts around 160,000 net new dwellings annually in FY26 and FY27, well short of the pace needed to meet the National Housing Accord's 1.2 million homes target by mid-2029.
Units are expected to outperform houses over the next two years, supported by stronger affordability and yields. KPMG said this reflects "stronger affordability, higher rental yields, and ongoing demand for lower-cost housing options."
Looking further out, KPMG expects a V-shaped recovery, with 2026's correction giving way to a gradual rebound in 2027 as supply shortages reassert themselves. Sydney, Melbourne, and Canberra are forecast to see the strongest gains, coming off a lower base, while affordability constraints are likely to cap renewed rapid growth in the previously booming mid-sized capitals, even as the broader market recovers.
KPMG cautioned that considerable uncertainty remains, warning that weak sentiment "can often outlast underlying fundamentals," raising the risk of a deeper or more prolonged downturn than currently forecast.
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