Housing prices rise in January despite affordability challenges

Australian home values experienced a growth of 0.8% in January, marking a slight increase from the 0.6% rise seen in December on Cotality’s Home Value Index. While the value of homes in every capital city and rest of state region increased during the month, the start of the year presented a mixed outcome.

Sydney and Melbourne had a minor impact on the overall numbers, with a 0.2% and 0.1% increase in January, showing a slight improvement following the slight declines observed in December. However, the values in these cities still remain slightly below their peak levels. Sydney is currently 0.1% lower than its peak in November 2025, while Melbourne values are 0.7% below their record highs from March 2022.

Despite the solid growth in mid-sized capitals, the momentum in these cities has somewhat diminished. Perth values demonstrated the strongest increase among the capitals, rising by 2.0% in January, but this was notably lower than the 2.9% growth recorded in November last year. Brisbane’s monthly gain also slowed from 2.0% in October to 1.6% in January, and Adelaide saw its monthly increase decrease to 1.2% from 1.8% in December.

The current market resilience indicates that there could be a further loss of momentum in the housing market. While there are record levels of unaffordability in many cities and increasing cost of living pressures, along with the possibility of an imminent rate hike, there is still a widespread appreciation in housing values. This trend is primarily due to the ongoing low housing supply in the face of heightened housing demand.

Looking ahead, Australia’s housing market is expected to face a blend of challenges and opportunities in the upcoming year. While supply side constraints and a stable job market continue to bolster housing values, factors like affordability issues, normalizing population growth, and cautious credit conditions are likely to dampen housing demand across the country.

In particular, the potential for rising inflation and subsequent rate hikes poses a significant challenge for the housing market. With inflation exceeding the Reserve Bank of Australia’s target range and the likelihood of a rate hike on the horizon, the increased borrowing costs and reduced purchasing power could impact consumer confidence and purchasing decisions.

Additionally, the affordability and serviceability constraints in the market are apparent, with rising home values relative to incomes and interest rates above pre-COVID levels. These hurdles present significant barriers for potential homebuyers, making it harder for them to enter the market.

Furthermore, the normalization of population growth after a period of robust immigration contributes to moderating housing demand. This shift alleviates some of the intense pressure on housing demand, providing a more balanced market outlook. Overall, while headwinds pose challenges to the housing market, tailwinds such as low supply levels, incentives for first-home buyers, and a resilient labor market alongside steady economic growth are expected to support prices in the face of softer demand conditions.