IN BRIEF
- New data has led to a shift in property market forecasts.
- Major financial institutions also expect the Reserve Bank to raise interest rates for a fourth time this year.
Australia's property price downturn continues apace, with home values across the nation now 3.6 per cent below their early-2026 peak, according to new figures from property market research firm Cotality.
A sharper than expected drop has prompted major financial institutions to update their forecasts, with the Commonwealth now expecting "faster and broader" price drops than the bank had previously forecast.
Property prices peaked and began to dip from March of this year, following signals that the federal government planned to remove some tax incentives for property investors.
Interest-rate rises, supply challenges and market sentiment are also thought to have played a part in the recent downturn.
In response to the latest statistics, Housing Minister Claire O'Neil said the nation's property market was "inherently cyclical".
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"We see periods of really strong house price growth that are followed by a period of housing downturn — that's happened now about four times in the last decade," she told Channel Seven's Sunrise on Wednesday morning.
The median price of housing in Australia has increased by more than 400 per cent since 1999, according to recent Treasury analysis. O'Neil said that the continuation of this long-term trend would shatter aspirations for future generations.
Whilst one economist says the downturn could be the most significant in 50 years, forecasters differ on how far prices will fall, partly because of differing expectations about important factors such as interest rate changes.
Here's how to interpret the numbers.
How far have property prices already fallen?
House prices across the nation dropped by 0.9 per cent in August, according to Cotality's national Home Value Index, contributing to a 3.1 per cent fall over the winter quarter.
The drop stretches to 3.6 per cent if measured from when property prices peaked in March of this year.
Cotality also found that 93 per cent of capital city suburbs were now experiencing property price drops. That's more than double the 45.8 per cent of such suburbs that were seeing declines through 2026's autumn months.
Darwin was the only state or territory capital to buck the downward trend, recording a 0.6 per cent increase over the last month and 0.9 per cent over the quarter.
At the other end of the spectrum, prices are falling fastest in Sydney, with home values decreasing by 1.4 per cent in August and 4.7 per cent across the quarter.
How far could property prices fall?
The Commonwealth Bank is now expecting prices to fall by around 9 per cent nationwide from a March 2026 peak before bottoming out in April 2027.
Australia's largest bank is also forecasting more significant drops in larger state capitals, with Sydney and Melbourne predicted to see declines of 13 and 12 per cent, respectively.
It's a significant shift from the bank's pre-winter predictions that dwelling prices would largely flatline over the course of the year.
CommBank also predicts that property prices will start rising again after April, eventually increasing by 2 per cent over the calendar year. The figure is a far cry from the 9.2 per cent property price went up across the country in 2025.
AMP is predicting a slightly steeper drop, with chief economist Shane Oliver saying that he now expects prices to fall by around 10 per cent across Australia.
Like the Commonwealth, Oliver also said drops would be most pronounced in large capitals like Sydney, noting that prices across Australia's largest property market had already dropped by 7.1 per cent since their peak in February.
Before the latest price-movement data from Cotality, NAB was forecasting a national drop of around 7 per cent, with declines of around 10 per cent in Sydney and Melbourne balanced by dips of between 2-4 per cent across smaller capital cities.
The bank's 10 August outlook paper also reminded readers that these declines were "broadly in line" with those seen in 2018-2019 and those caused by the Reserve Bank's rate-tightening round of 2022-2023.
Independent property economist Cameron Kusher told SBS News that he expects price drops will end up "on the higher side of the consensus 8-11 per cent".
"Most major banks and forecasters, myself included, believe that this downturn is going to be the largest downturn in the past 50 years or so," he said.
"As to whether specific forecasts are accurate, it's very hard to get these things right, but the trajectory of the housing market is clearly lower and with falls accelerating."
He said the fall in prices was being driven by an influx of sellers while some buyers were biding their time.
"At the moment, most would-be buyers are not in a hurry to make a purchase and [are] waiting for prices to fall further. How long that continues will also factor into how far prices fall."
However, he said the key determinant of how far prices would drop would be how much higher interest rates go and how long they remain elevated.
How many more interest rate rises will we see?
While property prices might be falling, inflation remains high in other areas of the economy, and most banks and economists predict the central bank will hike rates at one of its board's three remaining meetings of 2026.
The Commonwealth is predicting a 0.25 per cent hike at its early November meeting, although it believes a late September hike remains a possibility.
It predicts the Reserve Bank will only start cutting rates in May next year.
Similarly, AMP also expects another rate hike in November, with September also a possibility.
The Reserve Bank's cash rate has been raised three times already this year and currently sits at 4.35 per cent.
Kusher told SBS News that he thinks it would be at least 12 months before the RBA could start considering interest rate cuts.
With additional reporting by the Australian Associated Press
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