This transcript was generated automatically and may contain small errors.
The vacancy rate is half of where it was in 2019. Rents and property prices keep going up. In this episode, I'm going to unpack the trend of supply so you can finally understand if it's actually going up in 2026 or is it going to continue to get worse, further boosting rents and property prices. But I'm not done there. I'll be sharing four more trends serious property investors track to help level up their portfolios and stay in high-performing markets.
I'm Joma, the Senior Research Analyst at InvestorKit. Let's get into it. Before we get into the supply shortage trends, let's start from the interest rate trends. In 2026, we're expecting a few more rate cuts. Now, CBA is predicting a further 25 basis points cut in February 2026.
NAB is predicting a 25 basis points cut in May 2026. And Westpac is more optimistic, predicting two further cuts in February and May, bringing the cash rate down to 2. 85% by mid-2026. It's a good thing that we are expecting more rate cuts in 2026. But on the other hand, the cash rate is unlikely to go down further.
As interest rates stabilize at a relatively high level, affordability will continue to be a big driver for property market growth. With that in the background, affordable markets will keep gaining popularity. The traditionally affordable markets, including North Queensland, regional South Australia and Western Australia, will continue to be hotspots. And besides that, some relatively affordable markets in New South Wales, Victoria and Tasmania are on the emerge. Some examples include Dubbo and Tamworth in New South Wales, Bendigo and Ballarat in Victoria, and Burnie, Devonport, Launceston in Tasmania.
Trend number two, the rental crisis will continue with rental growth remains healthy. Vacancy rate is now still 1. 2% nationwide. Over the past year, vacancy rate has increased a bit in some regions in Australia, including Melbourne and Adelaide. But in most regions, vacancy rate either just increased by a minimal amount or actually declined.
The decline was the most pronounced in Tasmania, the Northern Territory and Canberra. The low vacancy rate or tight rental supply means that rental affordability across most regions in Australia will continue worsening. And that combined with the drop in interest rates would drive more demand from the rental market to the sales market, especially in regions or markets where monthly rents are not too much lower than monthly mortgage repayment. These markets are usually with a median house price of around $600,000 to $750,000. Here are some examples.
Toowoomba, the Queensland city, median house price now is $725,000. Let's assume 5% interest rate, 80% LVR loan. Our weekly repayment, including principal and interest, would be $726 per week. At the same time, rent for a median priced house would be $540 per week. That is less than $200 difference.
As interest rates further goes down, this gap could even shrink. That means if the rent keeps going up, there will be renters deciding not to rent anymore. With the same amount of money, I'd prefer to put in my own occupying home instead of a rental home anymore. Similar in Townsville, Townsville's median house price is now $600,000. With a 5% interest rate loan, the weekly repayment would be $600.
At the same time, median rent is now $540, very close to the mortgage repayment. So as rents keep going up, there must be renters being squeezed into the sales market. Bendigo as well, same median house price as in Townsville, same monthly mortgage repayment. Median rent is slightly lower, $495, but the tight rental market is actually pushing rents to grow fast. So in the coming year, as rents continue to grow, interest rates further drops, more renters would be driven to the sales market and further boosting the sales price growth.
And from a cash flow perspective, for investors, if you're entering a market with a really tight rental supply, even if your initial rental yield is not looking so good, with the tight rental supply and fast rental growth, you can expect your cash flow to improve relatively fast over the future few years. And that means when you select market, as long as rental supply is tight and all fundamentals are looking good, rental yield as a criteria can be loosened slightly. So you have more options to choose from. Trend number three, price gaps between core tiles will widen again, especially in the traditional hotspot cities such as Perth, Brisbane and Adelaide. In the past three years, when interest rates were high, lower core tile prices were growing much faster than the higher core tile price regions or sub markets.
And the gap between lower core tile and higher core tile prices actually narrowed a lot. The chart I'm sharing on the screen shows how different outer suburbs and inner suburbs have performed or grown over the past three years in our five major capital cities. Growth gaps are the largest in Brisbane, Adelaide and Perth. In Brisbane, inner suburbs overall have increased by 20% in value, while outer suburbs with much lower prices have increased by 40% in value overall. Adelaide, inner suburbs has increased by 26-27% in value, but at the same time, outer suburbs increased by 60% on average in value.
Perth, similarly, inner suburbs increased by 22-23% on average in value, while outer suburbs surged by 55% on average. And now, as interest rates are coming down, demand in higher priced sub markets is increasing due to the improvement in affordability. The increase in demand would be boosting prices up and widening the gap between these sub markets and the relatively affordable markets once again. Trend number four, between capital cities and regions, regions will most likely perform stronger. There's a demand driver and a supply driver.
On the demand side, we're seeing more people moving from the capital cities to the regions than from the regions to capital cities. According to the latest Regional Mover Index report, among all internal migrants, 11. 2% of them were moving from the capital cities to regions, while at the same time, there's only 8. 9% of them were moving from the regions to capital cities. That means housing demand overall in our regions is increasing fast.
At the same time, we have the supply driver. In the regions, supply shortage is more severe compared to the capital cities. The chart I'm showing on the screen shows annual net internal migration trend overlapped with the number of new house building approvals over each year. Trend is clear. Before COVID, net internal migration and new house construction, they were relatively balanced.
But since COVID occurred, there have been more internal migrants moving into the regions than the number of new houses being built to host these new residents. In the financial year of 2024 to 2025, the gap is still quite big, indicating the severe supply shortage in the regions. Now finally, we have come to the supply shortage. In 2026, supply shortage will continue to be the theme in Australia's property market. For sale listings in 2025 is still 30% lower than where it was in 2019.
There has been a slight increase in 2023 and 2024, but over 2025, it's been declining again. And vacancy rate, as I mentioned before, is around 1. 2% nationwide. And before COVID in 2019, it was actually above 2%. So now the vacancy rate is not only almost just half of the level of where it was in 2019, and it is not showing any sign of going back up.
So although at a national level, Australia's economy is not moving really fast, it's still gradually recovering. Affordability in many cities are continuing to worsen. And there are even rumors that in 2026, the property markets might collapse. Supply shortage will make sure that property prices will be continuing to grow, especially in those regions where the imbalance between supply and shortage is the sharpest. So now we've answered the question, is the supply shortage going to get better or worse?
You now know, data is telling us that it's probably going to get worse. Make sure to continue to follow these trends as 2026 unfolds. As I said earlier, a lot of this data helps serious investors make choices that increase their portfolio. So surround yourself with the expert team, track these trends, and keep growing your wealth. My name is Joma, Senior Analyst at InvestorKit, and I'll see you next time.
