Episode 104: The Three Signals Shaping Sydney in 2026

Hosts Ciaran O’Brien and Peter O’Malley deliver a clear-eyed check on how Sydney’s property market opens in 2026—steady inspections, cautious buyers, and a noticeable shift where apartments begin edging ahead of houses as first home buyer activity concentrates at the affordable end. We map the three key signals to watch this year—immigration, the employment market, and interest rates—and explain how they flow through to rents, sentiment, and price direction.

We also discuss:

• Buyer activity holding steady, but hesitation rising
• December exchanges pulling demand forward into early 2026
• A slight monthly fall for houses, while apartments lift
• First home buyer schemes pushing more demand into units
• Western Sydney showing intense entry-level competition
• Energy costs squeezing household budgets and adding pressure to rents
• The “three signals” for 2026: immigration, employment quality, and interest rates
• Why the RBA may “jawbone” markets before making any move
• Cumulative immigration tightening rentals and feeding CPI pressure
• Underemployment reducing borrowing capacity and shrinking buffers
• A practical read on where prices could bend next as conditions evolve

As always if there is a specific topic you would like for us to cover, please reach out and let us know!    

Transcript

SPEAKER_02 0:29

Hello and welcome to another edition of Current Market Insights. I'm your host, Kieran O'Brien, and with me is Mr. Peter O'Malley.

SPEAKER_01 0:36

Kieran, happy new year to you.

SPEAKER_02 0:37

Happy New Year to you, Peter, and a very happy new year to our listeners. Given that we are now well and truly into 2026, I thought it might be a great chance for us to have a bit of a look at the year ahead in property. Obviously, we're not profits, uh, but we can talk about what the market looks like to start the year, what the kind of conditions are more broadly in our economy, in the real estate sector, uh in central banking, etc. Uh, and what are those those things that are likely to influence how property operates this year? So if you're happy, why don't we just kick off with you, give you a bit of a sense of of how 2026 has started in your eyes and where you think it's likely to go from here?

Buyer Mood And Early-Year Activity

SPEAKER_01 1:18

Yeah, thanks, Kieran. Look, um, same but different to last year. Last year we uh racked up um uh a couple of early um uh sales, um, and it was driven by uh a sense that a rate cut, the first rate cut in uh four years was forthcoming, which it eventually did come in February. So buyers were really happy to act um uh you know to open the year in 2024. We've seen the same amount of activity so far, it in 2025, I should say. Um in in in tw here we are in 2026, um the same amount of buyers are attending inspections, um, but they're just a little bit more hesitant uh about acting. They're just taking a close look at things, not just um the listing at hand, but what other listings are coming to market, how many other people are active at the moment, um, what stock levels will be like in February, um, what does the inflation number, the quarterly inflation number, say on Wednesday, January 28th? Uh, what does the RBA do with interest rates um in in mid-February at the first meeting and then in March? So they're the sorts of things that the uh the market's looking at.

SPEAKER_02 2:34

One of the things that we talk about uh in in one of our last episodes last year was uh something you you have mentioned a lot, which is that the year typically uh can still fire. If you're a seller in property, you know, that period between sort of start to early December and early January can still be quite active. Given what you've just talked about as the the kind of things happening at the start of 2026, given that this is the first time we've spoken uh on the podcast since last year, how did you find that last period of December? And did that activity level is is it reflective in what's happening to start the year like it has in previous years? Or was it a little bit quieter than you expected? Was it busier than you expected? How, you know, how did it end and is it tracking the same way?

December Sales And Price Moves

Inflation Prints And RBA Watch

SPEAKER_01 3:18

Uh no, it ended it ended pretty strong actually. We had a strong run. Um, I think we did four exchanges leading into Christmas. Yep. So it could be argued that some of those sales um that happened with us, and and I saw a couple of other agents, you know, really uh squeezed a few sales in just before Christmas. It could be argued that if those properties were held back until January, they'd be selling now, giving you a positive reading for January. It must be noted that Cotality, uh the research house, recorded their first price falls for houses in 12 months in December 2025. Uh Cotality had Sydney property prices, um, houses and units combined running at a negative 0.1% for December. Um, but houses were running at a negative 0.3%, whilst apartments were up 0.3% on their numbers. So um we saw enough transactions in December. There's no no doubt about that. And I think the transactions will be forthcoming uh to finish January. Um, but just a uh just a slightly more cautious start this year than than um than what it was in 2025. And as I say, I think a lot of people are watching to see what the inflation numbers are. There was an inflation number um uh earlier in January, and it came in better than uh expectations, still above the RBA's target uh range, but uh actually lower than what was forecast. That was a good story there as well.

SPEAKER_02 4:43

Yeah, I think uh I'm not alone, as we often say, you know, not alone hoping that good stories continue to come from the RBA, but expectations are a little bit kind of cautious. Given that there's also a bunch of things happening across the world at the moment, you know, we've we've always got international activity that that has some impact. Do you think any of the current movements, you know, in the United States, in Europe, in in you know, what's going on in Ukraine still, do you think there's any kind of influence there uh that that is actually flowing down to add a little bit of caution to to people here just to hold their money and be a little bit more kind of wise with what they do at the moment?

Global Events Vs Local Housing

SPEAKER_01 5:19

Um not really, no. Um it's unsettling. Um, but when you're talking about domestic real estate, um I have um, you know, I was selling real estate, for example, during the Iraq War, and uh I thought that could be a really, really vicious uh event for the property market because of you know people going to ground. But domestic assets that are far removed from the issues of the day is where people would prefer to have their money. The money's got to flow somewhere. Yeah. And um those geopolitical events that thankfully at this stage are in the northern hemisphere, not the southern hemisphere, um, don't really play a role in how people um operate in the um in the in the local property market. Um being more broad though, uh if you follow what's happening with the Trump presidency, um they are like Australia, uh got a real battle with cost of living. Yeah. And uh aside from um the reasoning, everyone's got their theory as to why he did what he did in Venezuela and why he's doing what he's doing in Venezuela, um, most people accept that oil is the centerpiece of it. Yeah. Um, but I think um my read on it is that it was a uh uh you know it was a strategic block first and foremost on China. Um China we're we're becoming too ingrained in in Venezuela, but probably more importantly and related to the inflation story is that uh by getting control of the oil, shamelessly as he has, he's gonna try and keep the oil price low. Energy is in everything, the price of energy is in everything. He's gonna try and keep the price of oil as low as he can for the American consumer to give some cost of living relief heading for the midterm elections which happened, you know, which occur in the middle of this year.

SPEAKER_02 7:03

Yeah. Yeah, I I certainly, I mean, energy costs are going up. They're becoming a crippling problem for people, and obviously they they have some impact on people's property decisions.

SPEAKER_01 7:13

Well, they they they they are um going up um, you know, as as economies transition to renewables and the whole thing where Trump's throwing that rule book out the window. So in Australia, energy is a massive issue here because of uh uh you know our our climate orientation. I don't want to get into the wrongs and rights of that, but the reality are is that um the the Labor government um are uh you know looking for renewables and moving away from fossil fuels, and that is putting the price of energy up, as we all know. So there's a price to be paid for any any major decision like that.

Apartments Outperform And First-Home Schemes

Energy Costs And Household Budgets

SPEAKER_02 7:48

Yeah, and it's uh again, it certainly is impacting people's ability to even consider transacting in property, it's just another cost that they have to factor in. You mentioned in your numbers from Cotality that uh standalone houses had dropped slightly uh for the month of December, but apartments had risen uh by 0.3%, I think it was. What do you think, or did they give any insights into what the major drivers were for that shift in the apartment market? Because quite often, you know, you and I talk about how the the real growth and stability is in standalone houses. There is some you know growth in in apartments, but it's usually much more tempered, um, and houses tend to perform strongly, particularly in Sydney. Given that we have seen a bit of a reversal there. What what are your thoughts and what is Cotality's thoughts on what the major drivers are?

SPEAKER_01 8:33

Oh look, I think most commentators would would would agree that that um um outperformance of apartments as opposed to houses in Sydney last month is driven by the home guarantee scheme for first home buyers. Um so apartments are generally cheaper in nature, as we know. Um, and uh I saw some numbers where nationally where house prices were up three point uh uh house prices are up two point six percent, but property prices that uh appeal to uh first home buyers are up three point six percent um since the home guarantee scheme was was introduced. So there's no doubt that properties that uh uh appeal to first home buyers are now outperforming um the broader market.

SPEAKER_02 9:17

We talked about uh uh would have been probably September the first time I think it was, maybe August. We talked about that in all the other property initiatives the government have come out with over the decades, they inevitably end up in the pocket of the vendor in the seller's hands. And you know, Albanese and his government talked big about how that was not going to happen, you know, this is about making housing affordable. Um, given that the the home grant scheme really has ramped up, the caps increased, you know, it's been active since October. And given that we have seen a bit of a rise in that space, what what do you think the inevitable outcome is here? I mean, does it get to a point where there just is no houses that are even eligible for this this scheme within you know Stone Troll of major cities? Because it feels like that's what's going to happen in the long term.

Western Sydney Demand Surges

SPEAKER_01 10:04

Oh look, the government uh always reserves the right to then put the uh put the cap up. Um at the moment in Sydney it is 1.5 million. Um it's lower in other states or other capitals. Um so yeah, I don't think that's a uh that's that's a major issue. Um there's no doubt. I've spoken before about how strong Western Sydney is. It's quite remarkable what is happening out there at the moment. Um uh you you you put a property on the market and and you've got five offers at the end of the first weekend, there's no hesitancy from the buyers, they're just charging in.

SPEAKER_02 10:38

Yeah, yeah, it's it's certainly wild. And and you know, you've only got to read the newspaper to see what's happening in Western Sydney. There's just cues of people out there spending money that I can't even fathom. Uh you know, let's not even talk about the lack of infrastructure, etc., that concerns me about the whole thing. Uh I guess given that there is so much growth in that affordable space, what happens from here? You know, where does the the market go? Where, you know, where where do we go?

RBA Jawboning And Rate Path

SPEAKER_01 11:05

I I I have I have three three major points for for the year, Kieran, that'll determine where the market goes. I don't want to get caught in a forecast, get the market. I love your forecast better. And uh and have people say, yeah, you you you got it wrong. Um there's three there's three primary signals and signposts that I'm encouraging anyone who asks my opinion on it to follow. That is what are the immigration numbers? How does the um employment market perform, or what's the unemployment rate? Um, but employment market is a better way on that point to to assess things rather than the unemployment rate, because if you have if one if one has a$150,000 um uh job, for example, and they lose that job to AI, and they go out and uh just to keep themselves meaningfully employed um and swallow their pride a bit and take a hundred and twenty thousand dollar job um below their pay grade and above below their ability um to stay gainfully employed, um, that person won't show up in the unemployment rate. But AI has impacted on their quality of earnings and they're in a they're they're what we call underemployed. Yeah. And uh we've spoken before. I I I have friends, unfortunately, uh last year who lost their job, they were made redundant, and they're now gainfully employed again, but um not necessarily on the same favorable conditions that they were. So it could be argued that they're underemployed. Yeah, so the three big ones are immigration, the employment market, and interest rates. Um when we come to interest rates, I think what you'll see um come uh the quarterly inflation figures in in late January. If they uh are too high, the RBA will be forced to increase rates. Yeah. If they're at an uncomfortable level, which it's looking like they will be, and an uncomfortable level is inflation's running somewhere between 3.3 and 3.7, 3.3 and 3.8 maybe. Yep. The RBA will talk really, really tough and threaten. Um uh it's out of our hands. We've got to increase rates, but not increase at that point and just hope that it settles. And then um, you know, if it fell back into the target band that or below 3.3, that's that's clearly a hold. Uh most people accept in this cycle cuts are over and the next move um is fully priced in as an increase, but the timing of the increase is debatable, and I think you'll see a lot of jaw boning from from the RBA where they're they're they're delivering a a strong message verbally, but they're actually doing nothing from a policy perspective, hoping that the headlines that they create and the sentiment they they create will see the consumer stop spending.

Immigration Math And Rent Pressures

SPEAKER_02 13:45

I love that we've returned to the use of the word jawboning. This was this was prominent prior to Michelle Bullock taking over the RBA. That was you know pretty much what they were doing, and and you can argue that that was good or bad. Uh, you know, some would say that they jawbone too much and not enough action, and and some could say the other way around. Yeah, correct. You you've mentioned three pretty big things there. Obviously, we've talked about interest rates a lot, and you you've given your thoughts. You know, we'll we're going to see what happens in the next six to eight weeks as to whether or not we do go up or whether we hold, which, as we say, in in current climates is still potentially a rise for some people. Um, the other thing you talk about is obviously uh uh uh unemployment and underemployment, and fully acknowledge that I think we're you know, in my mind too, work from home has created this era of underemployment a little bit, or not created but really amplified what was an existing problem. Um but I'm before we wrap up, I'd love to just get your thoughts on where you think 2026 will go from the immigration side, and not politically, but uh more so that we talk about the supply and demand issue in Sydney is a massive problem and has been for quite some time. There's not enough house approvals coming in. We've had you know rampant immigration for the last few years. Given everything that's going on, the current kind of you know, Australian geopolitical climate, what do you think is likely to happen? Uh, and I'm not going to hold you to this in the next 12 months or so uh in the immigration space, and do you think it's going to positively or negatively impact prices and even rental availability here in Sydney?

SPEAKER_01 15:10

Well, positive and negatively is uh in in the eye of the beholder. So I'll stay away from positive and negative talks about its impact on property. Um I I have a view that governments of both persuasions find immigration too tempting. Um and what I mean by that is uh rampant immigration allows you to essentially fudge the books or cook the books, um, where you can look like you've got an economy that's performing strongly because it's growing at a government level, but at a per capita level, people are going backwards. Yeah. Um and um by um allowing um net overseas migration to run somewhere between 350,000 and 450,000 uh a year, a government can grow the economy without being brave with its policy.

SPEAKER_02 15:58

Yeah.

SPEAKER_01 15:59

Um so reforms are not in place. We'll just uh we'll just put a band-aid solution over everything by growing growing the population or importing um the more of a population that'll cook the books and expand um you know uh uh the government's coffers through taxation, etc. Um, and the GDP, and and and we look like we're good economic managers even though we're not. So um the other point that I've been um making on on the immigration is everyone talks about what was immigration last year, what what is it now? Um Kieran, I encourage people, anyone who wants to really get their head around immigration, is to go cumulative. How many people, NOM net overseas migration, how many people have entered the country, NOM, since COVID? And we're and we're we're heading towards two million if numbers persist this year. That's a remarkable number.

SPEAKER_02 16:51

Yeah. Well, considering our overall population and how slow it grows over the last, well, since I was a kid. I mean, it's been in the I don't know, like I can't think back to when I was little, but it's been in the 20s uh million for uh as long as I can remember. And you know, to effectively grow 10% uh in a small portion of that is is pretty crazy.

SPEAKER_01 17:10

Yeah, well it's it's it's it's fair to say that we're we're we've probably increased our population by five percent since uh since COVID through net overseas migration. Yeah. And uh uh the other thing I've said in relation uh to our um to our preview of uh 2026 when it comes to the rental market, if you do see, so some key numbers here, if you do see uh net overseas migration into Australia go through 350,000 this year, the majority of those people, as we know, end up in Sydney and Melbourne. The bottom end of the housing market, as we discussed today, and the rental market in Sydney and Melbourne will continue to explode.

SPEAKER_02 17:50

Yeah, and then where do they go? You know, where do and where does everyone else go?

Underemployment And The Consumer Squeeze

SPEAKER_01 17:54

Well, they have to pay more rent, um, which uh pushes inflation up in itself because rents are part of the CPI basket. Um but um you know the ability to save for a deposit um is absorbed because they're having to pay more rent. They're probably living in reduced uh living conditions where um instead of living in a two-bedroom unit with a second bedroom as a study, um, they're living um in a two-bedroom unit with a flatmate, for example, or they might be living in a five-bedroom house with four flatmates just to make ends meet. So that sort sort of living um will will will will increase in the inner city areas, again, if the immigration rate is at the levels it's at.

SPEAKER_02 18:34

Well, and you know, as we've talked about, at a time where potentially people are now more underemployed than they were previously, so they may have less cash available to afford these higher rents to kind of service their lifestyle, even if it's it's you know, just a very modest lifestyle, uh, it is certainly becoming more challenging. And I, you know, Sydney's, I I personally think Sydney's headed towards a really kind of precarious point where uh where does the balance end up? Because we can't just continue to grow in one sector and and the uh, you know, we can't grow numbers and not grow housing and grow prices and not grow wages. You know, there's so many factors here that just aren't all heading in the city. The pressures are enormous. Oh, it's incredible. It's incredible.

Where The Market Could Bend Next

SPEAKER_01 19:14

And and that at some stage will show up um in the numbers where people were not spending because they can't spend. And I think the RBA will try and hold until they get to that sort of inflection point for the consumer and the household where spending collapses just to make ends meet so that they don't have to increase rates. Um the RBA will sound like um uh when they do have their meeting in February, they will sound like they're uh ready to pull the trigger on rates and they're prepared to and they want to. But the underlying thing is they would they don't they don't want anything they they couldn't think of anything worse than increasing interest rates at the moment.

SPEAKER_02 19:50

Yeah, they just want to put the fear into people that if you're not careful, you know, this will happen, I warned you. That they'll be cruel to be kind. Of course. Yeah. Look, uh really great chat today, Peter. I think We've done a good couple of recaps recently about what is happening and all the changing market dynamics, but it's good to get a feel for what is, you know, how the year has started and where we go from here. I certainly look forward to chatting to you again shortly just to see if if things are continuing the same and hopefully we can get a better sense of where the RBA uh might go and what the kind of market sentiment is off the back of their decisions. Uh so as always, Peter, I thank you for coming in to chat with us. Thanks, Kieran, all the best. All the best to you, and thanks to everyone for listening to Current Market Insights. We look forward to speaking with you next time.

Wrap-Up And Next Steps

SPEAKER_00 20:31

Thanks for joining us on the Current Market Insights podcast. Brought to you by Harris Partners Real Estate. The podcast providing real estate insights you won't find anywhere else.