Article written by Matthew Hughes, Capital Property Advisory.
The Australian property market started 2026 on a surprisingly strong note, with national home values rising 0.8% in February – a slight acceleration from the growth recorded in December and January. However, this headline figure masks a genuinely multi-speed market. A surprise RBA rate hike to 3.85% in February and APRA’s new Debt-to-Income lending limits have introduced a meaningful recalibration. Borrowing capacity is tighter, and the days of buying anywhere and winning are behind us. What follows is a sharper environment that rewards precision. Here is where we are focused.
Perth: The Nation’s Strongest Market Continues its Run
Perth remains the undisputed top-performing capital city, with home values surging 2.3% in February alone. The core fundamentals driving this growth have not changed: advertised listings are still significantly below the five-year average, the rental market is exceptionally tight, and strong buyer demand continues to absorb new stock. KPMG still forecasts house price growth of 12.8% for 2026, the highest of any capital.
However, the nature of the opportunity is evolving. The broad-based, double-digit growth that rewarded almost any purchase two years ago has given way to a more selective market. Yield compression in some of the outer suburbs that led the last cycle means investors must now be more precise. The opportunity is no longer about just buying in Perth; it is about identifying the right suburbs and asset types that still offer a compelling combination of yield and potential growth – in the balance of this upswing cycle, and beyond. That is exactly where our team is focused.
Melbourne: The Value Play is Confirmed
Melbourne’s market is confirming our long-held view that it represents the most compelling strategic opportunity in Australia. After a slight dip in December, values recorded a modest 0.1% rise in January, and were stagnant in February, but the underlying story is one of gathering momentum. Critically, values still sit 0.7% below their March 2022 peak, meaning Melbourne is, in absolute terms, cheaper than it was four years ago.
Investors are taking note. Data shows disciplined capital is rotating back into Victoria, targeting Melbourne’s family housing corridors where value has been restored. With KPMG forecasting 6.8% house price growth and 7.3% unit price growth for 2026, the window of opportunity is open. We believe Melbourne offers the best medium-to-long-term risk-adjusted return of any capital city market in Australia today for investors who act before the mainstream narrative fully catches up.
The Rest of the Market: A Summary
Elsewhere, the multi-speed market is clear. Brisbane and Adelaide continue to record strong growth, with values rising 1.6% and 1.3% respectively in February, driven by the same low-listing environment supporting Perth. Sydney and Melbourne recorded precisely zero growth and both remain below their previous peaks. A defining feature across the country is the outperformance of the affordable end of the market; lower-quartile house values rose 4.7% over the three months to January, significantly outpacing the 0.3% rise in the upper quartile. This reflects the intense competition among first-home buyers and investors navigating tighter credit conditions.
Final Thoughts
This is not a market for passive investing. Perth and Victoria are our primary focus for clients right now – one for its continued fundamental strength and the need for surgical suburb selection, the other for its early-cycle recovery and exceptional value. If you would like to discuss how these conditions align with your investment strategy, reach out to the Capital Property Advisory team.
