Market Update: Momentum Builds, Selectivity Increases

Headline summary

Australia’s housing market has entered February with improving buyer momentum, but outcomes are becoming more uneven. Activity is lifting after the summer slowdown, yet price performance is increasingly determined by affordability bands, rental support and asset quality rather than broad market tailwinds.

National overview: prices and auctions

National dwelling values have broadly stabilised over recent months, following the slower conditions seen through late 2025. According to CoreLogic, price growth has flattened at a national level, with modest gains in select lower-priced markets offset by softer conditions at the upper end.

Auction clearance rates have edged higher since mid-January, particularly in Sydney and Melbourne, reflecting renewed buyer engagement as listings rebuild. However, clearance results remain sensitive to pricing. Well-located, appropriately priced homes are transacting, while aspirational pricing is increasingly being tested.

Rental markets: tight, but fragmenting

Rental conditions continue to provide a key support for investors. Vacancy rates remain below long-term averages across most capitals, helping to underpin advertised rents. However, conditions are no longer uniformly tight.

Data from SQM Research indicates that inner-city apartment markets have seen a gradual easing in vacancy as new supply comes online, while established suburban houses and townhouses remain more constrained. This divergence is reinforcing the importance of property type and location selection when assessing rental resilience.

Lending and finance: cautious confidence

Investor lending activity has stabilised following the volatility of the past two years. While borrowing costs remain elevated compared to the ultra-low rate environment of the early 2020s, improved rental income has partially offset serviceability pressures.

CommSec notes that credit growth is no longer contracting, suggesting that investors who have adapted to higher rates are gradually re-entering the market. This is translating into steady, rather than speculative, purchasing behaviour.

Risks and watch-items

Several factors warrant close attention as 2026 progresses:

• Affordability ceilings are limiting price growth in higher-value suburbs.
• New apartment supply pipelines may place pressure on rents in select inner-city markets.
• Any renewed inflationary pressures could delay expectations of future rate relief.

These risks reinforce the need for disciplined underwriting and conservative cash-flow assumptions.

Firm Foundations perspective

From our perspective, the current environment rewards selectivity over speed. Markets are no longer rising uniformly, and investors must be clear on why a particular asset should perform — both from a rental and long-term demand standpoint.

Assets with durable tenant demand, limited comparable supply and realistic entry pricing are best positioned. Conversely, properties reliant on short-term rental tightness or optimistic growth assumptions carry greater downside risk.

Conclusion

Momentum is returning to the housing market, but it is a measured momentum. For investors, success in 2026 will be less about timing the market and more about disciplined selection, cash-flow resilience and a clear understanding of local fundamentals.

Sources: CoreLogic; SQM Research.