Is it finally happening? Are property prices actually falling?
Key takeaways
- Property prices in Sydney and Melbourne have already started falling, and growth is slowing in other cities.
- Three RBA rate hikes and changes to investor tax rules in 2026 have added around $2,600 a year to the average Australian mortgage.
- What's next: One bank is forecasting price falls of 2–6% by 2027.
Australian property prices are slowing down. And every sign suggests they may even start to fall thanks to a perfect storm of high inflation, rising rates and recent tax changes.
Property prices in Sydney and Melbourne have already started to fall
Australian house prices had been on a tear recently, aside from the two biggest cities. Perth prices have risen 26% in the last 12 months, according to Cotality figures.
Brisbane prices have risen 19.7%, Darwin 19.6% and Adelaide 12.2%.
But the speed of this growth is slowing. And prices have already started falling in Sydney and Melbourne. The median Melbourne property value has fallen 1.5% in the last 3 months. Sydney has seen a fall of 0.9%.
Buyer demand seems softer in these cities, and there's an above-average number of listings
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What's driving the slowdown?
The reality of high inflation and rising rates is finally kicking in. But those growth rates show just how much demand there is in Australia's smaller capitals relative to the supply of homes.
"The housing market was losing momentum from late last year," says Cotality research director Tim Lawless, "slowed down by affordability issues and people's ability to borrow money.
"Now we have the additional downside pressure of higher interest rates, sentiment has fallen off a cliff, and rising inflation is set to drive the cost of debt even higher."
In May, the Reserve Bank of Australia (RBA) hiked the cash rate for a third time this year, bringing rates back to a 2-year peak. These three rate hikes combined have added around $2,600 a year to the average mortgage, according to Finder analysis.
How much will property prices fall?
Many factors make the next few months look uncertain for Australian property.
Last week's federal budget could help lower prices even further. Scrapping the capital gains tax discount and limiting negative gearing make property investing less attractive from a tax perspective.
HSBC economic analysis suggests that these changes will "weigh on new investor demand for existing dwellings in the coming period."
The idea is that with fewer investors to compete with, more home buyers will be able to enter the market at lower prices.
And inflation is still much higher than the RBA would like, thanks to rising fuel prices and housing costs. Interest rates could go even higher.
Three quarters of the experts in Finder's latest RBA survey predict another cash rate rise by either August (52%) or September (26%).
HSBC is predicting that prices will flatten over 2026 and decline, forecasting year-on-year falls of 2–6% by 2027.
Will any of it matter?
Australian property prices have seen incredible growth in the last few decades. And periods when prices fall are short and the declines are soon erased by more price rises.
Even the federal government's own modelling suggests its housing tax reforms from the budget will only help 75,000 extra first home buyers over a decade, which isn't many when you consider there are over 100,000 first home buyers in Australia every year.
It's hard to imagine that property prices would fall enough to really easy housing affordability.
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