Sydney’s property market looks set to remain strong in 2026, with forecasts pointing to continued, but slightly more measured growth.
KPMG’s latest Residential Property Outlook forecasts Sydney house prices to rise by up to 5.8% in 2026, with unit prices expected to lift by 5.3%. That’s a moderation from the stronger momentum seen through 2025, but still a solid result for a market as large and mature as Sydney, reflecting underlying strength rather than short-term excitement.
What’s driving Sydney’s continued growth?
A persistent housing shortfall
Sydney’s persistent undersupply of housing continues to underpin price growth, both for new and existing homes. According to SQM Research, total listings were down 2.9% year-on-year in January 2026. This scarcity underpins long-term value. In tightly held suburbs, limited stock supports competition among buyers focused on quality and location.
Like most Australian cities, new housing construction has also failed to keep pace with population growth, creating structural upward pressure on prices. Australian Bureau of Statistics data showed just 13,057 new dwellings were completed across New South Wales in the September 2025 quarter – well below the 18,850 required each quarter to meet the National Housing Accord’s goals for the state.
Rate-cutting cycle
The Reserve Bank of Australia’s (RBA’s) rate-cutting cycle through 2025 brought buyers back into the market. Lower borrowing costs improved purchasing power and buyer confidence, sustaining competition for quality assets. That momentum has carried into 2026, even as the rate outlook has become less certain.
Rental market pressure
Sydney’s rental market remains tight. According to the Real Estate Institute of Australia (REIA), the portion of family income required to meet rent payments was 27.2% in the September 2025 quarter. While this was down slightly from 28.6% the year before, it remains the tightest of all states and is well below the long-term average.
With national rents forecast by KPMG to grow around 3.5% annually, some households are reassessing the rent-versus-buy decision.
When rents rival mortgage repayments, purchasing can become more attractive, supporting demand for well-located apartments and family homes. The federal 5% Deposit Scheme is also assisting more buyers into lower price brackets.
What could slow Sydney’s growth?
Interest rate changes
While 2025 delivered rate relief, the RBA’s February 2026 rate rise reminded buyers that the cycle is not one-directional.
Uncertainty around rates can moderate price growth. Some buyers delay decisions, borrowing capacities fluctuate and lenders take a cautious approach. Together, these temper how far buyers can stretch. For existing mortgage holders, an uncertain rate environment increases the value of proactive loan management, scenario planning and flexible structures.
Affordability
Sydney remains Australia’s most expensive city to buy into. REIA reported that in the September 2025 quarter, it took 55.1% of a family’s income to service a mortgage. At these levels, there is a natural ceiling on how far prices can rise. Borrowers eventually reach limits on what they can comfortably repay, narrowing the active buyer pool and moderating bidding pressure. However, in a supply-constrained city like Sydney, this is more likely to just slow growth, rather than reverse it entirely.
Higher borrowing costs
Although rates eased in 2025, they remain well above earlier decade lows, and lenders continue to assess loans using the 3-percentage-point serviceability buffer mandated by the Australian Prudential Regulation Authority.
This means borrowers must demonstrate they can afford repayments at rates meaningfully higher than their actual loan rate, which can trim maximum borrowing capacity. This acts as a brake on how quickly prices can rise, even when demand is healthy.
A market that rewards preparation
Sydney’s 2026 outlook points to balanced growth supported by strong fundamentals. While a boom is unlikely, there are no clear signs of broad weakness. Instead, the market is likely to reward buyers who are strategic, selective and financially prepared.
Sydney remains Australia’s premier property market, with deep demand and limited supply providing a solid foundation.