Fresh data from Westpac has revealed that rising rates have chilled buyer sentiment even as tight supply keeps the nation’s house prices grinding higher.
Westpac’s latest Housing Pulse has warned that a “surprise” turn in the interest-rate cycle has rattled would‑be buyers in early 2026, even as house price expectations surge to new highs.
In its February 2026 Housing Pulse, Westpac framed the rate shift in striking terms, opening with the observation that “when it looked like it was safe to go back into the water again, a ‘rate rise surprise’ has sparked new fears about Australia’s housing market outlook in 2026”.
Over the past six months, rate expectations have swung from a gentle easing path to what the bank labelled “a relatively sudden retightening that is set to see most – possibly all – of last year’s cuts reversed”.
That pivot is already impacting activity, with Westpac noting that “the steady recovery in sentiment through most of 2025 has faltered”, with “prospective buyers, especially across the most affordability‑sensitive owner‑occupier segments” stepping back.
Sentiment cracks, but price expectations hit new highs
According to the bank, the sharpest damage was in purchase attitudes, with the Westpac–Melbourne Institute ‘time to buy a dwelling’ index dropping 12.8 per cent over the three months to February.
Yet Westpac stressed that the picture was not uniform across its sentiment measures.
“The changed rate outlook has done nothing to dent house price expectations which have instead pushed to new cycle highs,” the pulse reads.
Overall, the bank judged that housing‑related sentiment was still “marginally positive, albeit softer”.
There was also a notable split by age, with the bank noting that sentiment among younger cohorts “that tend to make up prospective first home buyers is still slightly positive overall”.
Prices cool at the margin, but no reversal
On the ground, Westpac said price momentum was easing rather than reversing.
Across the major capitals, the bank said dwelling values rose 2.1 per cent over the three months to January, down from 3.2 per cent in the prior quarter, with February tracking towards an annualised three‑month pace of about 1.8 per cent.
Yet despite this, annual growth accelerated, reaching 9.2 per cent in January – “the strongest since mid‑2024” – and likely lifting to 9.5 per cent for February.
Detached houses remain in front, with prices “up just over 10 per cent yr compared to about a 6 per cent yr gain for units”, yet the bank reiterated that the slowdown was “more pronounced in Sydney and Melbourne, and much milder in Brisbane, Adelaide and Perth”.
The bank’s central call is that “prices, turnover and new dwelling approvals” will all move “more slowly in 2026, but the differences are marginal rather than dramatic”.
State split widens: Sydney, Melbourne cool; Perth, Brisbane run hot
The Housing Pulse highlighted a widening divergence between the two largest cities and the rest of the country.
In NSW, Westpac said dwelling prices rose 0.7 per cent over the three months to January, “the slowest quarterly gain since the state emerged from the slight price correction in late 2024”.
Sydney was the main drag, with quarterly growth slipping to just 0.2 per cent from 2.5 per cent.
The bank said that “much of this weakness reflects the top end of the market, where prices now appear to be falling”.
Purchasing sentiment fell 7.6 per cent over the quarter, though it remained 4.6 per cent higher over the year.
Growth in Victoria came in even softer with the pulse stating that prices had “moderated from 2.0 per cent qtr three months ago to 0.5 per cent qtr”, with Melbourne “notably weak” at 0.1 per cent over the quarter.
Unit prices in the Victorian capital were down 0.2 per cent for the quarter, while house prices managed only a 0.3 per cent rise.
Against that, Queensland and Western Australia posted robust gains.
In Queensland, Westpac noted that dwelling prices rose 4.4 per cent over the quarter and 14.4 per cent over the year, “the strongest outcome since mid 2024”.
Brisbane surged 5.1 per cent for the quarter – a “rollicking 23.7 per cent annualised pace”.
Unlike most capitals, Brisbane units “are driving the gains, rising 6.1 per cent qtr, while house prices increased 4.9 per cent qtr”.
The bank said this was driven by an 18.7 per cent rebound in first home buyer activity in the December quarter.
Westpac described Western Australia as “the strongest housing market in Australia”.
The pulse said Western Australian prices increased 6.9 per cent over the quarter, with “growth lifting from 6.0 per cent qtr in Oct, and prices up 18.4 per cent yr”.
Perth’s 7 per cent quarterly rise took the three‑month annualised pace to 31.3 per cent – close to the highs of the mid‑2000s mining boom.
The value of new housing finance was up 9.4 per cent over the quarter, led by an 18.6 per cent surge in owner‑occupier first home buyer lending.
South Australia and Tasmania were also firming.
Westpac reported that South Australian dwelling prices had been rising “1 per cent mth or more for the past four months”, lifting quarterly growth to 4.8 per cent.
Regional South Australia slightly outpaced Adelaide and North Adelaide, running at roughly “a 20 per cent six‑month annualised pace”.
In Tasmania, price growth strengthened to 3.7 per cent over the quarter and 6.9 per cent annually, “the strongest outcomes since mid‑2022”, led by a 4.7 per cent quarterly rise in regional areas.
Total housing lending was up 35.8 per cent over the year, driven by investor lending, which Westpac said had jumped 73 per cent.
[Related: Brisbane’s dwelling price surge leaves FHBs reeling]
