Key takeaways
Fiscal 2026 appears like a mature, fundamentals-driven market part.
The “growth” part is over, however stable, location-driven progress stays.
Greatest threats are exterior (world shock, coverage misstep) or systemic (debt, building failures).
For now: a cautious thumbs-up, however a transparent warning – Australia’s financial good occasions aren’t assured to final.
Lengthy-term repair? Increase productiveness, rein in authorities spending, and refocus on actual financial outcomes, not political window dressing.
What’s the Australian housing market more likely to do in fiscal 26?
And are we staring down the barrel of a recession?
I get requested in regards to the R phrase loads as of late. More and more so.
So, let’s sort out each, as a result of the 2 are extra intertwined than most assume.
The recession query
First issues first. Are we more likely to hit a recession in fiscal 26?
Technically, a recession means two consecutive quarters of adverse GDP progress.
At this stage, main establishments aren’t forecasting that consequence.
The Reserve Financial institution of Australia (RBA), Treasury, and outfits like KPMG, NAB, and the OECD all level to average progress – roughly between 1.8% and a pair of.3%.
So, simply limping alongside.
Unemployment is tipped to hover round 4.5%, and whereas that’s a bit greater than right now, it’s nonetheless inside what economists name the “full employment” vary.
I feel that the ABS employment figures are BS, however whatever the precise depend, the employment outlook, for now, is little change over the following twelve months.
So, recession?
Unlikely. However not inconceivable.
The consensus places the chances someplace within the sub 20% vary.
What may tip us into recession?
A world shock? Rising damp? A housing crash?
Housing market outlook
What’s the housing market more likely to do?
Quick model: progress, however slower and extra uneven than current years.
The large submit COVID run-off is completed and dusted, and what we’re left with is a patchwork of undersupply, affordability strain, and a surprisingly resilient demand base.
Right here’s a breakdown of what to anticipate:
Nationwide progress: sluggish and regular
Nationwide home costs are forecast to rise between 3% and 6% throughout the 2025/26 monetary 12 months.
Connected dwelling costs are more likely to rise barely quicker, averaging say 5% to 7% over the following twelve months.
Why? Connected inventory – particularly terraces and townhouses – are extra reasonably priced than indifferent inventory in lots of circumstances and plenty of are forgoing the larger indifferent dwelling (and yard) for tighter, freehold titled connected or semi connected digs.
On the draw back: housing affordability is stretched, and credit score entry stays tighter than in earlier cycles.
Capital metropolis and main city centre breakdowns
Sydney metro: Anticipate 6% to 7% beneficial properties, placing the median worth round $1.83 million. Demand is being buoyed by tight listings and high-income purchaser segments. Contains Newcastle and Wollongong.
Melbourne metro: Costs anticipated to rise 5% to six%, with the market bouncing again after a sluggish few years. Melbourne appears low cost in the event you ask me, regardless of the pile of latest property taxes. Additionally, extra progress would occur if Victoria’s economic system and monetary affairs wasn’t in tatters. Contains Geelong.
Southeast Queensland: A story of two markets. Suburban indifferent houses could rise 3% to five%, however well-located connected dwellings may clock in at 7% to 9% progress, pushed by continued robust inhabitants progress and growing site visitors congestion. Clearly contains the Gold and Sunshine Coasts, plus Toowoomba and the Lockyer Valley too.
Perth: Nonetheless more likely to stay the standout. Costs may rise 8% to 10%, with a median home worth nudging $1 million. Sturdy economic system, constructive interstate migration plus very low inventory ranges underpin this projection.
Darwin: Undervalued large time and if new jobs may be created then Darwin may growth. I’m pondering 10% to fifteen% lifts in median worth factors this 12 months and subsequent. Possibly extra if the Beetaloo fuel operations get fracking. Pun supposed!
Adelaide: One other stable performer. Anticipate 6% to 7% progress, pushed by a mixture of investor demand, way of life migration, and restricted new provide.
Canberra and Hobart: Prone to see extra muted progress between 2% and 5% relying on migration ranges and financial circumstances.
Key market drivers
1. Rates of interest
The RBA is now easing. Anticipate one other 75 – 125 foundation factors in cuts over the following 12 months, with the money fee doubtlessly touchdown between 2.6% and three.1% by mid-2026.
This can present respiratory room for debtors and can stoke demand, significantly from first-home patrons and upgraders.
2. Undersupply
We’re merely not constructing sufficient.
Australia wants round 250,000 new dwellings a 12 months to satisfy inhabitants demand. Present completions? Nearer to 180,000. At greatest.
That shortfall is structural. Labour shortages, supplies prices, sluggish approval occasions – all mix to strangle new provide.
And builders are being inspired (compelled actually) to hunt approvals to construct the improper inventory.
3. Migration
Annual internet abroad migration stays robust, with over 500,000 folks arriving in 2023 alone.
Even when this slows to 300,000 – 350,000 yearly, that’s nonetheless substantial strain on city housing markets.
However I feel it will likely be nearer to 400,000 and 450,000 every year over the following decade or so.
And we want these bums on our seats. Furthermore we want the appropriate bums.
4. Coverage assist
Authorities schemes like Assist to Purchase and the Housing Australia Future Fund will inject modest assist for brand spanking new patrons and builders.
However don’t anticipate miracles.
These are useful on the margins and just for a short time they aren’t market changers. In reality, they stuff issues up quite than do any lasting good.
International purchaser restrictions (a brand new two-year ban from April 2025) could barely soften demand in status and off-the-plan sectors, however once more, this can be felt erratically, as there are a number of methods round this street block. It’s simply window dressing actually.
5. Affordability & credit score
Affordability stays a handbrake.
Households are devoting excessive and growing shares of earnings to mortgage repayments and rents.
Banks are additionally more and more risk-averse, particularly in relation to off-the-plan lending and in addition for any possession answer exterior of the normal types of tenure.
APRA must take a tough have a look at how they deal with housing titling preparations, particularly land lease. Why does it solely apply to over 55 product? It’s ought to be an possibility – with none monetary sanction – throughout the entire market.
Anticipate continued strain on middle-income patrons, even with falling rates of interest. So, the ‘gross sales practice’ may get damaged. Properly additional broke.
For mine, we want higher metrics on the affordability difficulty in order that some sensible options may be carried out. Additionally a bight mild must be shone on housing tenure and titling.
Extra on these items in future Matusik Missives.
And for now it’s a thump’s up!
However what else may tip our economic system over the sting?
Recession triggers
1. Fiscal austerity: Not pushed by authorities, pity, however by shoppers and personal enterprise. Reasonable to excessive danger. However affect restricted in the meanwhile. Why? Properly we have now been in a GDP per capita recession for nearly two years and it has had stuff all affect, actually, on the housing market and with rates of interest falling, its affect throughout fiscal 26 ought to stay slight.
2. Rising damp: However wanting ahead this danger will get extra onerous as authorities debt (throughout all three tiers, however particularly the states/territories) is just too excessive. And it’s rising alarmingly. Score businesses pay lots of consideration state and regional debt. This impacts the nation’s credit standing too as a result of the commonwealth ensures the states/territories debt and the federal ranking is, in flip, a risk to monetary establishments as a result of they can’t have a credit standing greater than a rustic’s degree of danger.
3. A world shock: Suppose commerce warfare, rising political unrest, or a black swan occasion like a significant cyberattack, Center-Japanese (or different) retaliation or one other pandemic. Reasonable probability in fiscal 26, however you by no means can actually inform.
4. International financial slowdown: China’s property woes or a US recession may dent sentiment quick. Reasonable probability.
5. Coverage missteps: Reminiscent of main tax adjustments (tremendous, adverse gearing, CGT) which may shift the market. Reasonable danger for now, however rising.
6. Development sector failure: Extra builders are going broke. This will deepen undersupply but in addition disrupt completions. Low to average danger.
7. Native unemployment spike: Job losses in building (see above), retail or hospitality may undermine purchaser confidence. Low at this stage.
8. Housing market crash: For the explanations outlined above, low at this stage.
9. Monetary system shock: Suppose one other GFC. Typically, there’s extra personal cash chasing a house throughout the phrase, than locations to speculate it. But with the rise of personal monetary organisations and looser governance, extra capital is going through growing danger. Possibly not a home of playing cards – but – however it solely takes just a few issues to go awry to begin the run.
Additionally with the money fee on the way in which down, extra retirees can be trying to transfer their cash out of money, time period deposits and fixed-interest investments as these returns drop. Some will try to take care of their present earnings by shifting up the danger spectrum. If ‘some’ turns to ‘many’ then this would possibly trigger an issue.
Total, low probability of a monetary shock, at this stage. However watch this house.
Finish be aware #1
However for fiscal 26, we’re coming into a extra mature part of the property cycle. The fireworks are over.
What comes subsequent is pushed by fundamentals: rates of interest, migration, provide, and affordability.
Briefly: the housing market isn’t booming, however it’s not busting both.
Anticipate 3% to six% nationwide progress, with regional variations and connected dwellings presumably outpacing conventional indifferent homes.
Recession danger? Low at this stage and we aren’t out of the woods but.
And, for mine, the danger of a recession is rising as time goes by.
And whist fiscal 26 is more likely to be okay, I can’t assist however assume that Australia’s good occasions would possibly quickly be over.
Finish be aware #2
For mine Australia’s present fiscal trajectory must be reversed by means of improved productiveness (and never the BS that’s coming within the August talkfest, however by authorities getting out of the way in which) and by authorities reining in its spending.
Some actual world insurance policies – and never the combo grill of woke advantage signalling nonsense that we have now to place up with as of late – that truly construct prosperity and play to our strengths would do wonders too.
Except we do one thing – and fast good – austerity is coming. By some means. And large time.
