Five Years of Capital Growth — Is 2026 the Turning Point?

Andrew Bell Market Update | Issue 26

Five Years of Capital Growth — Is 2026 the Turning Point?

As 2025 draws to a close, Australia’s real estate sector stands at a pivotal moment. Price growth has remained resilient for five consecutive years, yet the gap between dwelling values, income levels, and borrowing capacity has widened sharply. In this update, we explore the key pressures influencing the market and the implications for 2026.

Australia’s remarkable run of growth has taken national housing affordability to its lowest level on record. The cost of a typical home has now climbed to 8.2 times household income, making it increasingly difficult for many Australians to enter the market. Renters are also facing unprecedented strain, with rents consuming around 33.4% of household income.

The median Australian dwelling value sits at approximately $865,000, compared with a median pre-tax annual income of $104,309. When combined with rising living costs and subdued wage growth, the affordability challenge becomes evident. In major cities, the dwelling value-to-income ratio has reached stretched levels: Sydney at 10 times income, Brisbane at 8.8, Perth at 7.7, and Melbourne at 7.2. For context, banks are typically cautious about lending above five times a borrower’s income, which highlights the magnitude of the current imbalance.

This growing divide between prices and incomes is contributing to renewed discussion from APRA, which I’ll return to shortly.

For aspiring first home buyers, the hurdle of saving a deposit continues to rise. It now takes an average household around 11 years to accumulate a 20% deposit — a sobering figure that underscores the widening gap between aspiration and reality.

Turning to recent market performance, national dwelling values rose 0.5% in November, taking annual growth to 8.7%. On a typical home, that equates to just under $78,000 in additional value over the past twelve months. Despite this, the pace of growth is showing signs of moderation in the major east coast markets. Sydney, Melbourne and Brisbane, which led much of the earlier surge, are now demonstrating a gradual slowing.

Conversely, Adelaide and Perth continue to record strong results, likely reflecting a period of catch-up after several years of comparatively softer growth relative to the east coast.

The recalibration in expectations around interest rates is playing a key role in this shift. Earlier optimism for steady rate cuts has softened considerably. The economy remains steady but sluggish, inflation is still elevated, and there is even some speculation of a further rate increase before any reductions occur. If rate cuts materialise, current consensus suggests two possible decreases in the second half of 2026, contingent on inflation easing.

What is now gaining significant attention is the recent warning issued by APRA. The regulator has proposed a debt-to-income cap that would limit banks to issuing no more than 20% of new mortgages to borrowers with debt levels of six times their annual income or higher.

For instance, a purchaser earning around $166,000 seeking to buy a property above $1 million may fall into this higher-risk lending category. Under APRA’s approach, banks would be far more restricted in how many such loans they can issue, potentially reducing the borrowing power of a segment of the market that has helped drive prices higher in recent years. This represents a structural change that could materially influence purchasing power and price momentum.

Naturally, many people are now asking how long this growth cycle can continue. The reality is that no market can sustain 8–10% annual increases indefinitely without corresponding rises in household income. Borrowing power has limits, and when those limits are reached, activity slows.

With nearly 50 years of industry experience, I have witnessed many iterations of the traditional seven-year property cycle, typically measured from peak to peak. These cycles generally include two to three years of strong growth, followed by a 12–18 month correction phase, and then a period of relative flatness before the next cycle begins.

Importantly, correction phases are usually triggered by an unexpected event — something that emerges quickly and often from outside Australia. The 1987 stock market crash and the 2007 Global Financial Crisis are textbook examples. While there is currently no clear catalyst on the horizon, history suggests that market-shifting events often lie quietly in the background until they surface.

I am frequently asked when an owner should consider exiting the market. I often reference Warren Buffett, regarded as one of the world’s greatest investors, whose guidance is straightforward:
“Buy when others are fearful. Sell when others are greedy.”

This aligns neatly with the longstanding adage that “a bird in the hand is worth two in the bush.” For many owners, the opportunity to secure substantial capital gains after a period of exceptional growth can provide both financial advantage and strategic flexibility. By stepping back during a correction phase, buyers are often able to re-enter the market under far more favourable conditions.

Despite these considerations, the most influential force in the current market remains the severe undersupply of housing. Australia’s rapid population growth has far outstripped construction levels, creating a structural shortage that continues to underpin prices, even as affordability worsens.

Looking ahead, 2026 is shaping up to be one of the most intriguing years of the decade, with regulatory changes, interest rate movements, affordability constraints and supply shortages converging simultaneously.

For those contemplating capitalising on the gains of recent years, I offer a final reminder about “The Event”,  — the most prominent and successful real estate marketing campaign of its kind in Australia, exclusively conducted by the Ray White Bell Group.

Each January, motivated buyers travel specifically to the Gold Coast to inspect properties participating in “The Event”,  , recognising it as the premier platform for high-profile, competitive campaigns. If you are considering selling in 2026, January is the optimal month, and The Event is the program that will place your property in front of the largest possible buyer audience.

If you would like further information, the details are on screen. We encourage you to reach out promptly as campaign preparations are already underway.

Wishing you a warm and enjoyable lead-up to Christmas, and a prosperous close to 2025.

Andrew Bell, OAM
Chairman & CEO | Ray White Bell Group