Australian house prices could fall by up to 20 per cent from their peak, analysts have cautioned, as the property downturn gathers pace and increasingly resembles New Zealand’s recent housing slump.
The warning follows Wednesday’s inflation figure, which climbed to a six-month high of 4.3 per cent despite four interest rate increases this year. The result has intensified expectations that the Reserve Bank could lift rates again at next week’s Melbourne Cup Day meeting.
If all five rate rises are passed on to borrowers, average monthly mortgage repayments would increase by about $456, adding roughly $5,472 to annual household costs.
Cotality figures show dwelling values across Australia’s five biggest capital cities have dropped 7.6 per cent since April. Sydney has recorded the sharpest decline, with prices now nearly 10 per cent below their peak.
Louis Christopher, managing director of SQM Research, described the national housing market as “extraordinarily weak” and said Sydney could face a 20 per cent peak-to-trough fall.
A decline of that size would erase $300,000 from a property worth $1.5 million at the height of the market.
“In Sydney, the market’s in deep trouble,” Mr Christopher told the Australian Financial Review.
“There are still plenty of vendors who are unwilling to move on their prices. They have not yet been prepared to meet buyers in the middle.
Analysts have warned Australian house prices could drop by as much as 20 per cent from their peak as the housing downturn deepens and comparisons grow with New Zealand’s property slump
Economist Leith van Onselen (pictured) said Australia was experiencing its most severe housing correction in living memory
“The problem is that buyers have stepped back even further, likely because of growing fears that another interest rate increase is on the way.
“If this pace continues, we cannot rule out a 20 per cent fall from peak to trough in Sydney. Conditions are that weak at present.”
The deterioration has also hit Australia’s auction market, which is enduring its weakest period since the pandemic. Clearance rates have remained below 50 per cent for most of the past five months.
Leith van Onselen, chief economist at MB Fund, said home values were declining at a “furious pace” and warned the country was confronting its largest housing correction in living memory.
“In 15 years of covering the property market at MacroBusiness, I have never seen housing conditions this weak.
“Vendors are cutting their asking prices aggressively in an attempt to attract buyers, but purchasers are still refusing to take the bait:
“At the current rate of decline, dwelling values will be approaching a 10 per cent fall from their peak by New Year’s Eve, and there is no clear sign of the downturn ending,” Mr van Onselen said.
“The growing number of properties listed for sale, combined with weakening buyer demand, has driven prices lower. Domain recorded declines in every capital city market during the September quarter, only the second time that has happened on record:
Sydney sellers are now reducing home prices by an average of 4.8 per cent from their original asking figures, while the typical selling period has increased to 46 days from 29
House prices in Auckland (pictured) are now 25 per cent below their peak
He said analysts had been rapidly downgrading their forecasts, with HSBC chief economist Paul Bloxham recently tipping a 13 per cent peak-to-trough decline in capital city dwelling values.
ANZ also revised its outlook last week, forecasting a 13.5 per cent decline across the capitals, with Sydney, Adelaide and Brisbane expected to fall by more than 15 per cent.
‘The combination of rising interest rates, global uncertainty and tax policy changes has dampened sentiment’, the ANZ economists wrote. ‘Clearance rates have been mostly below 50% since May 2026 (when Labor handed down its budget) and various indicators, such as sentiment and time on the market, suggest demand is weak’.
‘While the Sydney and Melbourne markets have been the most affected so far, there are signs that some of the smaller capitals are starting to catch up’, ANZ said.
The warnings have drawn comparisons with New Zealand’s housing downturn, where higher interest rates triggered one of the sharpest corrections in decades.
New Zealand’s national median house price has fallen NZ$170,000, or 18.4 per cent, from its November 2021 peak of NZ$925,000 to NZ$755,000 in September 2026. Prices fell 2.3 per cent over the past year.
Wellington prices remain almost 30 per cent below their peak, while Auckland values are still about 25 per cent lower, with expensive homes suffering some of the biggest falls.
In Australia, independent analyst Cameron Kusher said ‘confidence has really evaporated, affordability is very stretched, and borrowing capacity is reduced dramatically’ following four rate hikes this year.
Buyers’ agent Glenn Price (pictured) said despite expecting the Reserve Bank to leave interest rates unchanged next week, a pause would do little to restore confidence
RBA governor Michele Bullock (pictured) and her board next meet on Melbourne Cup Day
‘People just aren’t in a position or able to pay the prices that a lot of these properties are worth at the moment’, he added.
He said first-home buyers were increasingly willing to wait as prices fell.
‘I think a lot of them are looking at it and saying, well, prices are falling, why would I jump in now when there’s quite a lot for sale, if I wait another six or 12 months properties will probably be cheaper’, Mr Kusher said.
‘I just don’t think first home buyers have that urgency anymore’.
Nerida Conisbee, chief economist at Ray White, the country’s largest residential real estate agency, described the market as ‘paralysed’.
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‘We’re seeing very low levels of open home attendance’, Ms Conisbee said. ‘We’re also seeing very few sellers coming to market. The market just seems paralysed, more than anything’.
Auctioneer Tom Panos offered a similarly bleak assessment, saying the downturn had spread across the country and was putting pressure on real estate agents and mortgage brokers.
‘I’m going to say something that some people in real estate won’t want to hear, and that is there is nothing I’m seeing now, right at this moment, that’s going to tell me the property market is getting better.
‘In fact, I can tell you this is no longer now a Sydney, Melbourne, Brisbane problem. Perth and Adelaide have joined in. Darwin as well.
‘But let me tell you where else I’m seeing the pain. Let me tell you where else I’m seeing the pain. Real estate agents, mortgage brokers and that whole ecosystem now are officially in a lot of pain. is the first time in 15 years we can say that right across Australia is going down.’
‘I’ve been told that about nine months ago, just in one part of Sydney, that Parramatta, Western Sydney area, there was 1,600 agents.
‘That number has apparently fallen by 400 when there was a count done last week. That’s approximately one in four agents has gone. I want you to think about that statistic.’
Buyers’ agent Glenn Price said vendors remained anchored to boom-era expectations despite the deteriorating market.
‘The forecasts are catching up with a market that has already moved,’ he told the Daily Mail.
‘A lot of vendors and agents are still living in the boom and pricing property based on the market they remember, not the one that’s in front of them.’
Mr Price said demand had dried up across most suburbs, with activity largely confined to the prestige market.
Sydney vendors are now discounting homes by an average of 4.8 per cent off their asking price, up from 3 per cent a year ago, while average selling times have blown out to 46 days from 29.
Tom Panos said many real estate agents are struggling in the market
‘Even Perth, the standout performer of the past five years, is cooling,’ Mr Price said.
The prospect of further Reserve Bank rate rises, which could push mortgage rates above 7 per cent, is adding to concerns.
However, Mr Price expects the bank to leave rates unchanged when it meets on Melbourne Cup Day next week. He said a pause would do little to restore confidence.
‘A hold won’t fix this market. It won’t bring buyers back,’ he said.
‘The economy is that shaky, and buyers have been burnt too many times. Confidence in the government isn’t helping either, with the PM’s net satisfaction at a record low.
‘It’s like getting back together with an ex after the third messy breakup. You might say yes, but you don’t trust it.
‘If I’m wrong and they hike, it gets worse. Some owners simply can’t carry the repayments, so they’ll sell, and more stock lands on a market with nobody to buy it.’
Mr Price pointed to rising unemployment and falling national home values as reasons for the bank to pause.
‘Unemployment is at a five-year high of 4.7 per cent and national home values are 5.2 per cent below the March peak according to Cotality,’ he said.
Mr Panos called for changes to negative gearing, capital gains tax and superannuation rules to help stabilise the housing market.
‘Instead of effectively removing negative gearing for established properties purchased under the new rules, I would allow Australians to negative gear up to three investment properties.
‘Why would you do that? I’ll tell you why. Because I think there’s a difference between a mum-and-dad investor having some financial security and somebody accumulating 20 or 30 properties using some tax system. I think that’s a big difference, right?
‘You put a sensible ceiling on it, and that will create stability in the property market and create stability to tenants. You put a sensible ceiling on it, you’d still maintain an incentive.
‘The second thing I would do: capital gains tax.
‘I would retain the 50 per cent capital gains discount for residential property that has been held for more than 10 years, right? That’s going to get rid of the people that go in to try and flip property, and it’s going to reward long-term stability, and it’s going to reward long-term ownership.
‘We need that stability.
‘Don’t give the same incentive to somebody flipping a property quickly as someone who has provided homes in the rental market for 10, 15, 20 years. Many others have done it for 30 years. Make the tax system encourage patience rather than speculation.
‘And I have to tell you, had the government spent more time in the consultation process before that day in May when they changed the country in one night, if they had consulted with the various bodies, they would have come back with a far better budget that would have had far less unintended consequences.
‘Which every day we find out about something that has gone pear-shaped because of that night.
‘And number three, the other thing I would change is on super.
‘I would review the rules around the self-managed super funds and residential property, and look at how we can make it easier for Australians to invest their retirement savings into housing’