Property prices could keep falling into 2027 — here’s what it means for you
Key takeaways
- Australian property prices are falling, with experts suggesting there's more to come.
- High interest rates, restricted borrowing power and investor tax changes are all putting downward pressure on house prices.
- What's next: ANZ is now predicting a 4.3% capital city price drop in 2026 and a further 3.4% drop next year.
Australian property prices are falling, and will likely keep falling for the rest of the year, banks and experts say.
In July, property prices fell 0.7% nationwide in month-on-month terms for the first time. Prices in several cities like Sydney, Melbourne and Canberra have now seen sustained price falls for several months.
And this might just be the beginning.
"I don't think this is just a short-term adjustment. I think there's more downside to come before the market finds its new equilibrium," says Nick Chong, mortgage broker and founder of Ardent Capital.
The banks are also forecasting further declines. ANZ is now predicting a 4.3% decline in 2026 and a further 3.4% drop next year.
NAB is now forecasting a 5% drop in 2026, with "peak to trough declines of ~10% in Sydney and Melbourne and 2-4% in the mid-sized capitals."
So how much will property prices fall this time? And how long will this downturn last?
"I think the biggest correction has occurred, but I don't think we will see a quick bounce-back," says buyer's agent and Property Investment Professionals of Australia Chair Cate Bakos.
NAB is forecasting "some recovery in late 2027."
What's driving prices down?
"What makes this cycle different from a temporary dip is that borrowing capacity itself is being constrained," says Chong.
"Rates are higher, lenders are being more disciplined around highly leveraged borrowers, and APRA's debt-to-income restrictions are putting another ceiling on how far some buyers can stretch."
Interest rates are now at a two-year high. Just one more cash rate hike will push rates to levels not seen since 2011.
And the federal government's May budget, which wound back tax incentives for investors, is also helping reduce prices.
"The biggest shock was the budget announcements, but in tandem with three consecutive rate rises and global instability and rising household costs, the combination of headwinds have influenced price declines," says Bakos.
Chong says investors who benefit from grandfathered exemptions to the tax changes are reluctant to sell, but also wary of buying established properties right now.
"It's putting the brakes on both sides of the market."
A look back at past property downturns
We can look at recent history as a guide when forecasting how much property prices can fall.
The two biggest periods of downward house prices in recent Australian history are from 2022–23 and 2017–19.
- 2022–23. In a 9-month period the value of combined capital cities fell 8.1% according to Cotality figures. Prices fell thanks to a very sharp increase in interest rates to combat an inflation spike, and perhaps as a correction to an overheated market during the unusual circumstances of the COVID pandemic.
- 2017–19. In a 19-month period the value of combined capital cities fell 8.2%. This is the biggest and longest drop in recent history. Experts believe the reason for this decline was a tightening of lending restrictions and the Banking Royal Commission, which explored inappropriate lending among other examples of bank misconduct.
In both cases we saw a national decline of around 8% (bigger in cities like Sydney and Melbourne). And in both cases, prices quickly bounced back.
Is it a good time to buy?
After the 2022–23 price drop, property prices grew 14.5% by October 2024, taking prices to new highs in under two years.
Now might be the time to buy, despite all the challenges with high rates and restrained borrowing power.
"The market conditions for first homebuyers are more attractive than pre-budget," says Bakos.
"However, first homebuyers are notoriously skittish and many haven't grabbed hold of the opportunity staring them in the face."
Sources
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