By Tom Johnston, Lead Buyers Agent & Defence Property Specialist
Regional prices are outpacing capitals and auction activity has strengthened, while investors remain focused on fundamentals amid affordability pressures.
The market’s early-2026 theme is becoming clearer: momentum is present, but it’s increasingly selective. Regional markets are continuing to outperform in aggregate, rental conditions tightened again after the holiday period, and the best results are flowing to properties that sit in the “affordable, high-utility” segment of each market. For investors, this is a week to focus less on broad headlines and more on where demand is actually concentrated — by price point, property type, and rental appeal.
Cotality (formerly CoreLogic) continues to highlight a split market: the lower end of the market is doing more of the lifting than premium segments. In their February 2026 Home Value Index reporting, Cotality noted stronger growth at lower price points across the combined capitals, reflecting intense competition for more affordable housing and a demand pool that includes first home buyers and investors.
Regional performance remains a standout feature of the cycle. Cotality’s index shows the combined regional markets rising faster than the combined capitals through January, reinforcing that relative affordability and constrained supply continue to support many non-metro locations. This doesn’t mean “all regional” is a buy signal — performance varies materially by town, employment base and supply pipelines — but the aggregate trend remains supportive.
Auction conditions are also firming as we move deeper into February. Where quality stock is sensibly priced, buyers are prepared to compete. Where vendors are anchored to peak expectations, negotiation windows are widening. That contrast is increasingly useful for investors: it’s creating more opportunities to buy well, provided you have clarity on value and the confidence to walk away when the numbers don’t stack up.
Rental conditions tightened again after the seasonal ease of December. SQM Research reported Australia’s national residential vacancy rate fell to 1.2% in January 2026 (down from 1.4% in December), with the number of vacant dwellings also declining — a typical post-holiday tightening as listings are absorbed and households reset for the year.
For investors, the important point isn’t simply that vacancy is low — it’s what low vacancy does to risk. Tight vacancy generally reduces letting risk, supports steadier cash flow, and improves the downside profile of a property if the broader market becomes more price-sensitive. However, vacancy is still uneven across segments: select inner-city unit markets can behave differently to established houses in supply-constrained suburbs, and investors should avoid assuming uniform conditions.
In yield terms, rental strength continues to help offset higher interest costs. Even if rental growth is moderating from the fastest years of the cycle, the base level of rent is materially higher than it was two to three years ago. That matters because it improves holding capacity — and holding capacity is a competitive advantage in a market where the “easy wins” are less common.
Investor behaviour remains disciplined. Enquiry has lifted as listings rebuild and confidence improves, but the market is increasingly rewarding buyers who are prepared, patient and selective rather than reactive. Higher borrowing costs are still shaping serviceability, which in turn is pushing demand toward assets that can be defended on fundamentals: tenant appeal, scarcity, and realistic entry pricing.
This is also where the lower-price-point theme becomes relevant for investors. Where borrowing capacity has limits, demand concentrates. And where demand concentrates, liquidity improves — not just for purchase, but eventually for resale. That doesn’t mean chasing “cheap” stock; it means understanding where a location’s depth of buyer and tenant demand sits, and aligning your acquisitions accordingly.
The current environment is not a broad green light to buy indiscriminately — it’s a “selective opportunity” market. The most investable conditions appear where three things align: (1) durable rental demand and low letting risk, (2) constrained or slow-moving supply, and (3) pricing that can be defended by fundamentals rather than sentiment.
This is also a market where investors should actively use the return of listings to their advantage. Rising choice improves your negotiating position — but only if you have a clear buy box, tight underwriting assumptions and the patience to let marginal deals pass. In 2026, discipline is the differentiator.
Regional outperformance remains evident in aggregate, rentals tightened again in January, and conditions are firming where stock is high quality and sensibly priced. For investors, the play isn’t to “chase momentum” — it’s to buy assets with defensible demand and strong holding fundamentals while the market becomes increasingly segmented.
Sources: Cotality Home Value Index (Feb 2026); SQM Research National Vacancy Rates (Jan 2026).
Contact: info@firmfoundationsproperty.com.au