Q4 2025 in Review and the Q1 2026 Outlook: The Cycle Turns
Australian property market Q1 2026 outlook with a Q4 2025 review: a strong year gives way to the rate-hike turn, cooling capitals and a more cautious market.
The market closed 2025 strong and opened 2026 into a headwind. What looked like a soft landing has become something sharper: the RBA has started raising rates, and the cycle that powered last year's growth is turning. This is the moment the easing story ended and the tightening story began.
This is a review of how Q4 2025 finished, and an outlook for a Q1 2026 that looks very different from the year before it.
How Q4 2025 finished
The final quarter of 2025 capped a strong year, even as the warning signs gathered.
Growth stayed solid. National values kept rising through the quarter, extending the spring momentum into year-end.
The mid-sized capitals led. Perth and Brisbane posted some of the strongest gains, while Sydney and Melbourne lagged and began to soften.
The full year was a good one. National values delivered high single-digit annual growth, recovering strongly from where 2025 began.
The number: Australian home values closed 2025 with high single-digit annual growth, one of the stronger years of the cycle, per CoreLogic. But the late-year inflation pickup was already setting up a very different 2026.
The turn that defines Q1 2026
The new year brought the shift that reframes everything: the RBA began to tighten.
The first hike landed in February. After a hot inflation print, the RBA raised the cash rate for the first time since 2023, reversing the easing of 2025.
It was driven by inflation. The late-2025 pickup proved persistent, broadening across the economy and forcing the Bank's hand.
The market repriced quickly. Expectations of further cuts vanished, replaced by the prospect of more hikes through the year.
The tailwind became a headwind. The cheap-money support that powered 2025 is now being withdrawn, and the market is adjusting.
The capitals diverge sharply
| Capital | Q1 2026 direction | Read |
|---|---|---|
| Perth | Still rising, slowing | Resources and supply hold it up |
| Brisbane | Still rising, slowing | Migration cushions the turn |
| Adelaide | Moderating | Steady but past its peak pace |
| Sydney | Stalling, softening | Most rate-sensitive, turning first |
| Melbourne | Stalling, softening | Rate turn stalls the recovery |
The takeaway: the divergence of 2025 has sharpened, with the rate-sensitive capitals turning down first while the supply-driven mid-sized cities slow but hold up better.
Why the cities are splitting
The rate turn does not hit every market equally, and the split is widening.
Sydney and Melbourne feel it first. As the most leveraged markets, they are the most exposed to rising rates, and their momentum has stalled.
Perth and Brisbane are more insulated. Record-low supply and strong demand are cushioning them, so they keep rising even as the pace slows.
The supply shortage is doing real work. Across every capital, scarce stock is limiting how far a rate-driven slowdown can push prices down.
The lesson is local. The national number is becoming less useful as the gap between cooling and resilient markets widens.
The rental market holds firm
Amid the cooling, the rental market remains a source of stability.
Vacancies stay tight. The combined capitals continue to run well below balanced levels, keeping landlords in control.
Rents keep rising, modestly. Growth has moderated from its peak but remains positive, supporting investor cashflow as capital growth cools.
For investors, that is the silver lining. The income side of the equation is holding up even as the growth side turns.
The Q1 2026 outlook
The quarter ahead is defined by the rate question and how far it goes.
More hikes are possible. With inflation still elevated, the RBA may not be done, and the market is watching every print.
The market will keep cooling. Higher rates and reduced borrowing capacity will weigh on demand, especially in the expensive capitals.
But a crash looks unlikely. The supply shortage and tight rentals provide a floor that past tightening cycles lacked.
Resilience is the watchword. This is a year to prioritise cashflow and quality over momentum, and to read individual markets closely.
What investors should ask
Why has the market turned so quickly? Inflation reaccelerated in late 2025 and forced the RBA to start hiking in early 2026. The cheap-money tailwind that drove 2025 has been withdrawn, and the market is adjusting fast.
Which markets are holding up best? Perth and Brisbane, cushioned by record-low supply and strong demand. The rate-sensitive capitals, Sydney and Melbourne, are turning down first.
Will prices crash in 2026? A crash looks unlikely. Higher rates are cooling the market, but the chronic supply shortage and tight rentals provide a floor that past tightening cycles did not have.
How many more hikes are coming? Uncertain, and dependent on inflation. With prices still elevated, the RBA may not be finished, so investors should plan for the possibility of further tightening.
What should I do as the cycle turns? Prioritise cashflow, stress-test for higher rates, and read individual markets rather than national headlines. Resilience matters more than momentum in a tightening cycle.
The bottom line
Q4 2025 capped a strong year, but Q1 2026 marks the turn: the RBA has started raising rates to fight resurgent inflation, and the cycle that powered last year's growth is reversing. The market is cooling, the capitals are diverging sharply as Sydney and Melbourne soften first, and the cheap-money tailwind has become a headwind. Yet tight supply and a firm rental market mean this is a cooling, not a collapse. For investors, the quarter calls for resilience over momentum, cashflow over speculation, and local analysis over national headlines. See how your portfolio is tracking as the cycle turns in your Clear Yield dashboard.