3 Warning Signs Every Australian Property Investor Must Know For 2026【APS123】

Inflation finally dropped. A few days ago, the Australian Bureau of Statistics released the November 2025 monthly CPI numbers. Headline inflation went from 3.8% in October to 3.4%. That’s 0.4% lower than last month. Way below what the market expected. Inflation is falling faster than most economists thought.

Common sense says this should be great news. Inflation comes down, the central bank keeps cutting rates, mortgage payments get easier, more people buy, and prices go up.

But something weird happened. When the December property numbers came out, Sydney dropped. Melbourne dropped. Not just prices. Auction clearance rates tanked. Sydney’s clearance rate hit 58.1%. The worst since December 2024. An entire year without numbers this ugly.

This doesn’t make sense. Falling inflation should help the property market. Rate-cut expectations should push prices higher. The news was good. So why are prices going the other way?

The Reserve Bank of Australia just did a complete 180. A few months back, they were talking about more rate cuts. Now they’re saying, “We’re looking at situations where we might need to raise rates.” Raise. Not cut. Raise.

Today I’ll show you what’s really going on. Why good news turned into bad news. What the RBA is actually thinking. And is 2026 your last shot at getting in? Or is this the quiet moment before everything falls apart?

What The Inflation Numbers Really Mean

Let’s take a look at the details. January 7th, 2026. The ABS released the November CPI. Headline inflation dropped from 3.8% to 3.4%. Lower than the 3.7% everyone expected. That’s the lowest since February 2024. Almost two years to get back here.

Housing inflation went from 5.9% to 5.2%. Solid drop. Rent growth slowed from 4.2% to 4.0%. New home prices held at 2.8%. Electricity in Queensland jumped 19.7% because subsidies ended. Looks scary, but that’s a one-time thing.

Surface level? Everything looks right. Inflation down. Cost of living easing. The central bank can breathe. But there’s one number most people missed. This number decides what the RBA does next. Trimmed Mean CPI. Core inflation.

You take out the crazy price swings on both ends. What’s left is the real trend. Why? Because some moves are temporary. Strip those out, and you see what inflation is actually doing. The RBA watches this number like a hawk. It shows where inflation is heading, free of short-term noise. This number went from 3.3% to 3.2%. You might say, “Still went down.” True. But the RBA’s target is 2% to 3%. We’re still above that range. That’s the problem.

Headlines say inflation dropped big. The number the RBA actually cares about? Still stuck high. The RBA doesn’t want one good month. They want inflation to settle into a range of 2% to 3% and stay there.

Think about dieting. You skip dinner, and the scale says you lost half a kilo. The next day it’s back. Did you actually lose weight? The RBA isn’t watching one weigh-in. They’re watching the trend.

This inflation report looks like a win on the surface. Underneath? Not so much. That gap triggered the RBA’s sudden change.

The Central Bank Changed Its Mind

Quick background. In 2025, the RBA cut rates three times. Cash rate went from 4.35% to 3.60%. Everyone figured 2026 would bring more cuts. Lots of buyers were waiting.

Then, on December 9th, 2025, meeting minutes came out. One sentence gives everyone a shock. “The board discussed under what circumstances it might need to consider raising the cash rate in 2026.” Raising. The word was raising.

Imagine you’re seeing someone, and they keep talking about moving forward. Then one day they say, “Maybe we should see other people.” That’s the shock we’re talking about.

The RBA Governor made it worse at her press conference. She said more cuts might not be necessary. And she left the door open for a hike in February 2026. When a central bank governor says “hike,” they mean it. Days later, Deputy Governor Andrew Hauser said we might have already seen the last cut of this cycle.

Three signals. All pointing the same way. Cutting is done. Hikes could be coming back. Market expectations flipped. The ASX rate tracker shows the chance of a February hike at 34%-36%. One in three odds next month.

The big four banks can’t agree. CBA says hike in February, rates at 3.85% by year-end. NAB predicts hikes in February and May, rates to 4.10%. Westpac and ANZ think rates stay put. When all four banks split, we’re at a turning point. In weeks, we went from “waiting for cuts” to “worried about hikes.” That swing is why prices started falling.

Short-term prices don’t move based on today's rates. They move based on where people think rates are going. Good expectations, people buy, prices rise. Bad expectations, people hesitate, prices drop.

Expectations turned around. Prices are as follows.

Sydney And Melbourne Lead The Way Down

Cotality, used to be CoreLogic, released December data on January 2nd. National prices went up 0.7%. Not bad. But the smallest gain in five months. Momentum is fading.

Look at Sydney and Melbourne. Sydney fell 0.1%. PropTrack had it at 0.3% down. Melbourne also dropped 0.1%. 0.1% sounds tiny. But these two cities make up half of Australia’s property market. When they turn down, the whole market shifts.

Check auction clearance rates. Week of December 14th, national clearance hit 62.7%. Sydney was 58.1%. Lowest since December 2024. Melbourne at 65.7%. Back in October, during spring rush, national clearance was 73%. Two months later, down more than 10 points. Falling clearance means properties aren’t selling. Buyers are watching from the sidelines. Sellers are dropping prices or pulling listings.

Tim Lawless at Cotality said it well: “The market is catching up with reality. High rate expectations, cost of living, and worsening affordability have cooled things down.”

Full year 2025 wasn’t bad. Sydney gained 5.8%. Melbourne 4.8%. But Perth is up 15.9%. Brisbane 14.5%. Adelaide over 10%. Smaller capitals ran circles around Sydney and Melbourne. The national median house price now sits at $900,000.

The market is splitting. Big cities are cooling. Mid-size cities are still hot. Two different Australias. Two different speeds. This split will likely widen in 2026.

Affordability Hit The Wall

Now the real issue. What actually determines where this market goes? Affordability.

Can regular people buy a home? How much do you need to earn? How many years to save?

The ANZ-CoreLogic Housing Affordability Report shows the price-to-income ratio hit 8.0 nationally. Matches the all-time record from 2022. The 20-year average? Just 6.7.

An Australian family would need to save every dollar for 8 years to afford a median home. Real life? Longer. You still need to eat and pay rent.

Sydney is worse. Price-to-income is at 9.8. Use the international Demographia standard, and Sydney hits 13.8. Second-highest in the world. Only Hong Kong is worse.

A Sydney family saving everything would need 10 to 13 years for a middle-of-the-road house. Mortgage payments eat up 62.1% of Sydney household income. More than 60 cents of every dollar goes to the mortgage. The other 40 cents covers everything else. Food, transport, school, and health. Everything.

Saving 20% for a Sydney deposit takes 13.1 years. A uni graduate starts at 22. By the time they have a deposit, they’re pushing 40.

When expectations flip from “cuts coming” to “hikes coming”? These stretched buyers see their last hope disappear. They were thinking, “I’ll wait for rate cuts to buy.” Now? “They might go up? I’ll keep waiting.”

More waiting. Less buying. Prices soften. That’s why prices are falling when inflation drops. What moves prices isn’t inflation itself. It’s rate expectations. Whether buyers can pay. Whether they want to pay. Expectations shifted. Everything shifted.

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Why Prices Won’t Crash

Lots of people ask: prices dropping is good, right? Finally affordable? Not so fast. Look at the supply.

In 2024, about 177,000 homes were finished. Australia needs 223,000 a year. Gap of 68,000 homes. Every year we’re building 70,000 fewer than needed. That shortfall adds up.

The federal government had a big plan. 1.2 million homes in five years. 240,000 a year. Where are we? Not even half. Good intentions. Terrible follow-through. Why can’t we build enough?

Builders going bust. 2023-24 year, 2,832 construction companies collapsed. Up 28%. No builders, no homes. Building costs are through the roof. Since the pandemic, up 43%. Average cost to build now? $504,000. Developers see tiny margins, huge risk. Many projects never start. Land approvals slow. Infrastructure can’t keep up. Regulatory costs are climbing. Net overseas migration in 2024-25 was 306,000 people. Down from the peak but still high. All need somewhere to live. Demand is real.

Not enough supply. Strong demand. Structural problem. Not getting fixed in a year or two. Sydney and Melbourne face short-term pressure. We might see an adjustment. But long-term? Supply-demand imbalance hasn’t changed. There’s a floor under prices.

Bearish short-term. Bullish long-term. Some bumps ahead. But a crash? No. We don’t have enough homes. That’s reality.

What’s Coming In 2026

It looks like people are split on where the market is headed this year. Both Domain and PropTrack are tipping a 6% to 7% increase in 2026. This relies on interest rates staying put. Shane Oliver from AMP is suggesting a 5% to 7% lift, but that's based on the exact same assumption. If the RBA goes ahead and raises rates, these predictions are essentially off the table.

So, a couple of big dates are coming up that will pretty much decide what happens next.

First up is January 28th, 2026. That's when the quarterly Consumer Price Index (CPI) figures drop. This is the one that's going to show us what's really going on with inflation.

Then, there's the Reserve Bank of Australia (RBA)'s first get-together of the year on February 2nd and 3rd, 2026. The RBA's whole decision about whether to bump up interest rates totally depends on that CPI number from January 28th.

If core inflation stays high, a rate hike is looking more likely. But, if it dips back into that sweet spot of 2% to 3%, the pressure for a hike should ease off. The big banks are split: CBA and NAB are betting on a hike, while Westpac and ANZ think the RBA will sit tight. Right now, we're at a seriously pivotal moment.

The economy's giving us mixed signals, with some cool spots and some hot spots:

• Sydney & Melbourne: Don't panic, but expect a bit of a dip short-term. A full-blown crash is highly unlikely thanks to solid supply/demand, but things are definitely cooling down.

• Buying Now? This "everyone's waiting" period could be your best chance to buy. Historically, the sweet deals pop up when the market is uncertain; by the time everyone's confident, prices will already be on the move up.

• Go Regional: Think about spreading your investments around. Cities like Perth, Brisbane, and Adelaide are looking much healthier—they're more affordable and have great growth potential. Seriously, don't put all your eggs in the Sydney and Melbourne baskets.

• When We'll Know More: Keep an eye on January 28th and early February. That's when the market picture should start to clear up.

When the market is confusing, you need to keep your eyes on the big picture. Don't let little ups and downs scare you, and don't be fooled by numbers on the surface. To make smart calls, you have to look deeper than what everyone is seeing.

Property is a long-haul game—think 10 to 20 years. Honestly, what happens this month or next just doesn't matter much. So, the key is not to let all that short-term market noise mess with your decision-making.

If you're buying a place to live in, there's no real reason to delay. Once the market's direction is super clear, everyone jumps in, and the best places get snapped up fast. For investors, it might be smart to check out opportunities in other states. Perth, Brisbane, and Adelaide could be offering better market conditions right now.

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