Residential Property Market Shows Resilience as 2026 Begins

The residential auction market started 2026 very strongly after the summer break. There was significantly higher auction activity than for the same week last year and stronger clearance rates. Auction performance can be a good lead indicator of market sentiment. This auction activity can also be an indicator that vendors were seeking to sell before any downward pressure on prices from an expected cash rate increase in February. But auction activity is only one part of the larger residential market.

We didn’t have to wait long for the Reserve Bank of Australia Board’s first meeting of 2026. The result was a 25-basis-point increase in the cash rate, and many lenders were quick to pass this on to residential mortgage customers. In the year ahead, demand and sentiment will be dampened not only by interest rates (and the prospect of further increases due to stubbornly high inflation) but also by interrelated factors such as affordability, serviceability, and cost-of-living pressures.

However, all these factors seem likely to be outweighed by the low number of dwellings listed for sale (Cotality data shows overall residential listings are 20 per cent below the five-year average). The supply of new dwellings is also restricted, construction of new dwellings is well below National Housing Accord targets, and construction costs are increasing. Other factors that will edge prices higher include a strong labour market and incentives for first homebuyers will continue throughout the year.

As expected, residential transaction data is now showing that lower-value properties are increasing in price more rapidly than higher-value properties. In this market segment, first homebuyers with government financial support are competing with demand from investor purchasers, which is fuelled by strengthening rental returns. The first home guarantee scheme stimulates demand and may assist with the viability of residential construction projects, but without directly creating supply, this has led to current price rises and will result in an undersupplied market segment when the scheme expires.

The Australian Property Institute undertook a survey of its members at the end of 2025 to establish a quarterly Property Market Outlook Index. Herron Todd White valuers are proud to have participated in this initiative. For residential property, the confidence score (out of a possible 10) for the last three months was 7.5, with the score for the next three months being slightly lower at 7.3. As always, the national aggregate reflects some significant variations in confidence between states. Western Australia has the highest score at 8.9, followed by Queensland at 8.5, South Australia at 8.2, and New South Wales and Victoria at 6.6 and 5.9 respectively. The lower confidence scores can be interpreted to mean an expectation of rising property prices, but at a lower rate of increase.

The overall picture for the residential property market in 2026 is one of resilience. In summary, supply is significantly restricted and demand is still strong. As always, the range of factors and markets means that the impact varies around the country and by price band. For more detailed local market analysis, I invite you to read the contributions from our Herron Todd White experts around the country.