Australian home prices are poised to rise by as much as 12 per cent—equating to an extra $141,000 on the median house price in the capital cities—if the Reserve Bank of Australia cuts the cash rate by 1.5 per cent by early 2026, as widely anticipated.
The median house price across the combined capitals, currently sitting at $1.18 million, could soar to $1.32 million, according to Domain data and modelling by economist Peter Tulip of the Centre for Independent Studies. Sydney’s median price could climb to nearly $1.9 million, while Melbourne and Brisbane would rise to $1.16 million and $1.145 million respectively.
Michael Yardney, CEO of Metropole Property Strategists, says the forecasted rate cuts will expand buyers’ borrowing power and boost market confidence. “It’s a good idea to get in before the rate cuts really buoy prices in the property market,” he advised.
Tulip’s economic model predicts a 6 per cent price rise in the first year for every 1 per cent rate cut, with an 8 per cent total rise expected over two years. With the cash rate currently at 4.1 per cent, and a projected fall to 2.6 per cent by early 2026, the housing market could see a full 12 per cent surge in prices.
Compounding the effect, the federal government’s new first-home buyer policy—allowing 5 per cent deposits without lender’s mortgage insurance from January 2026—is expected to fuel demand further, especially at the entry-level end of the market.
However, supply shortages remain unaddressed, which could exacerbate price increases. “The government is pouring fuel on the fire with incentives, but doing little to ease supply constraints,” Yardney added.
NAB predicts the cash rate will fall to 3.1 per cent by August, and eventually to 2.6 per cent, while other major banks forecast similar trends.
Dr Nicola Powell, Domain’s chief of research and economics, expects four rate cuts this year alone. “These cuts will provide a sugar hit to the market, especially in undervalued cities like Melbourne,” she said, pointing to rising demand, population growth, and low housing supply as key price drivers.
Despite optimism, global uncertainties remain. Tariff policies under US President Donald Trump and the health of China’s economy could influence the scale and speed of any RBA moves.
Buyer’s agent Rich Harvey of Propertybuyer.com.au anticipates price increases will vary by city, with Sydney and Melbourne likely to lead, while Perth may see a slowdown after recent strong gains.
“The market is already showing signs of renewed interest, and rate cuts will supercharge that,” Harvey said. “Confidence is key, and we’re seeing it return.”
Still, some warn the affordability crisis could deepen if prices continue to outpace incomes. “If rate cuts and incentives fuel another boom, we risk making home ownership even harder for future buyers,” Yardney cautioned.
As Australia braces for a potentially red-hot housing market by 2026, buyers are being urged to act early—or risk being priced out.
