Will Australian house prices fall in 2026? What the latest forecasts say

Key takeaways

• CBA has revised its national dwelling price growth forecast to 3% in 2026 and 3% in 2027, down from a previous forecast of 5%, following the Federal Budget's negative gearing and CGT changes.

• Westpac IQ expects dwelling price growth to stall flat on average across major capital cities for calendar 2026, with total housing market turnover expected to decline around 20%.

• Cotality data shows the national home value index rose just 0.3% in April 2026, its slowest pace since January 2025, with Sydney and Melbourne recording monthly falls.

• Supply shortages, population growth, and long-term fundamentals continue to underpin property values, but market conditions are expected to vary significantly by city and property type.

Australia's property market continues to surprise many economists and borrowers.

Recent months have introduced a period of genuine uncertainty, with two significant headwinds arriving in quick succession: three RBA rate rises in February, March and May 2026, and the most significant changes to property investment tax settings in nearly three decades.

The 2026-27 Federal Budget, handed down on 12 May, announced that from 1 July 2027, negative gearing on established residential properties purchased after budget night will be restricted, and the 50% capital gains tax discount will be replaced by cost base indexation and a new 30% minimum tax rate.

Major lenders have since revised their housing forecasts. CBA now expects national dwelling prices to grow 3% over the year to December 2026, down from a prior forecast of 5%, while Westpac IQ expects price growth to stall flat on average across the major capital cities for calendar 2026.

Cotality's national Home Value Index rose just 0.3% in April, its slowest pace since January 2025, while Sydney and Melbourne recorded monthly falls of 0.6%.

For buyers, refinancers and investors, the question is less about whether prices will rise or fall in every market, and more about what these shifting conditions could mean for their own plans.

So, will Australian house prices fall in 2026?

The short answer is: it depends on where you're looking and what type of property.

The latest forecasts suggest the market is moving into a slower-growth environment, not a broad-based national decline. For prepared buyers and refinancers, that distinction matters.

While expectations differ between lenders, both CBA and Westpac IQ have revised their outlooks lower following the Federal Budget's tax changes and the recent series of rate rises.

Conditions are also becoming increasingly localised. Some markets are showing signs of moderation, while others continue to be supported by limited housing supply and population growth.

This means buyers, refinancers, and investors who understand local conditions may be better placed to identify opportunities that align with their goals and circumstances.

Property Update reports that national home prices were broadly flat in May, according to the latest PropTrack Home Price Index, suggesting market conditions remain subdued despite ongoing supply constraints.

What's clear is that the combination of three RBA rate rises and the Budget's negative gearing and CGT changes has shifted the outlook materially since earlier in the year.

Forecasts now range from modest growth to broadly flat conditions, reflecting a more cautious view of the market than many lenders held at the start of 2026.

The sections below unpack what this could mean in practice for different types of borrowers.

What's happening to Australian house prices right now?

Interest rates are usually one of the biggest factors affecting housing demand. Higher rates can reduce borrowing power and increase mortgage repayments, which may slow buyer activity.

For buyers, this highlights how market conditions can move in different directions at the same time. While some areas may see slower growth than others, constrained supply can continue supporting prices in certain markets.

According to Westpac IQ, the Federal Budget's tax changes are expected to contribute to a 34% decline in new investor activity in the near term, while overall housing market turnover could fall by around 20%.

CBA estimates that the combined effect of the negative gearing and capital gains tax changes is broadly equivalent to a 90 to 155 basis point increase in investor mortgage rates in immediate cash-flow term.

Housing supply remains constrained across many parts of Australia, while population growth continues to support underlying demand, factors many analysts believe may continue supporting property values over the longer term, even as conditions moderate in some markets.

Cotality's Home Value Index shows housing market performance continued to vary across Australian cities during the higher interest rate environment.

City-level conditions vary considerably. Price growth was already moderating before the Budget across most capital cities, with auction clearance rates easing and listings in Sydney and Melbourne running above long-term averages.

Perth, Brisbane and Adelaide have generally shown more resilience than the southern capitals, where affordability constraints are more acute.

You might also be interested in: Why falling clearance rates could be the signal investors have been waiting for

What higher rates could still mean for borrowers

Regardless of how prices move in individual markets, higher interest rates continue to affect borrowers in practical ways.

For many Australians, the immediate impact of higher rates is on borrowing capacity and monthly repayments.

Even if property prices remain relatively stable in some markets, buyers may still find they can borrow less than they could during lower-rate periods because lenders assess serviceability using higher repayment buffers.

The table below provides examples of how interest rate changes may affect monthly repayments on $500,000 and $750,000 owner-occupier principal and interest home loans over a 30-year term.

Repayments are estimates only and do not include fees or charges. Actual repayments will vary depending on loan features, lender policies and borrower circumstances.

Understanding how rate changes affect your own borrowing capacity and repayments, rather than a hypothetical scenario, is something an Aussie Broker can help you explore.

At the same time, higher rates do not affect all borrowers equally. Australians with larger deposits, stable incomes or existing equity may find there are still opportunities available, particularly in markets where buyer competition has eased.

You might also be interested in: 2026 Federal Budget – What borrowers need to know

What this could mean for first home buyers

For first home buyers, rising property prices can feel discouraging, particularly when affordability is already stretched.

Entering the market during a period of uncertainty can be challenging, especially for buyers who are still building a deposit or working within a tighter budget.

The Budget changes may present a genuine opportunity for first home buyers over time.

CBA has noted that the combined effect of the negative gearing and CGT reforms is expected to leave established dwelling prices around 3% lower than they otherwise would have been, with the impact most concentrated in apartments and lower-priced segments, the same segments where many first home buyers are looking.

Whether this translates into meaningfully improved affordability will depend on how individual markets respond. However, the changes may favour buyers over investors in some market segments, particularly where investor demand has historically been strongest.

However, forecasts do not always translate into uniform price increases or declines across every suburb or property type. Conditions can vary significantly between locations.

Some buyers may also benefit from:

• exploring suburbs or property types with less buyer competition, which may open more options than expected

• considering apartments or townhouses in areas with increased supply, which may improve affordability

• checking eligibility for state-based first home buyer support programs

• understanding available stamp duty concessions or exemptions before purchasing

• exploring government initiatives such as the Home Guarantee Scheme

At the same time, waiting for more favourable market conditions can be difficult because property prices, interest rates and borrowing conditions can all change independently.

This is why many buyers find that focusing on what they can comfortably afford now, rather than waiting for perfect conditions, puts them in a stronger position when the right property comes along.

An Aussie Broker can help buyers understand their borrowing power, compare loan options and explore what government schemes they may be eligible for.

Why refinancers may have more options than they realise

Higher interest rates and shifting market conditions have kept refinancing activity elevated across Australia, and for some borrowers, the current environment may present opportunities to reassess whether their existing loan still suits their needs.

ABS lending indicators show many borrowers have continued refinancing their home loans during the higher interest rate environment.

For refinancers, equity positions will vary depending on when and where they purchased.

Borrowers who bought before recent price increases may still hold meaningful equity, which could create opportunities to:

• refinance to a different lender

• negotiate a more competitive rate

• consolidate debt

• access equity for renovations or investment purposes

However, refinancing suitability depends on individual circumstances, including income, expenses, loan size, and lender assessment criteria.

When assessing whether refinancing could be worth exploring, these are some of the key factors borrowers typically consider:

Reviewing a home loan regularly may help borrowers understand whether their current loan still suits their needs.

What investors may be watching closely

Property investors are also likely to continue monitoring interest rates, rental demand, and housing supply closely throughout 2026.

One significant shift is the relative treatment of new versus established dwellings under the new tax settings.

Westpac IQ notes that new builds remain fully exempt from the negative gearing restrictions and retain the option of either the 50% CGT discount or cost base indexation, making newly constructed properties potentially more attractive than established stock for some future investors.

CBA similarly expects the impact of the changes to be most concentrated in apartment and lower-priced segments where investor activity has historically been highest.

SQM Research vacancy rate data shows rental vacancy rates have remained low across many Australian cities, contributing to continued pressure on rents in some markets.

ABS lending indicators show investor lending activity has continued during the higher interest rate environment.

For some investors, the current environment may shift attention towards rental yields, cash flow, and borrowing costs, while the new build exemptions may influence where future investment activity is directed.

Importantly, different property markets can behave differently during periods of economic uncertainty.

Investors also need to consider that property markets can move through cycles, and forecasts can change over time depending on economic conditions.

You might also be interested in: Should you buy an investment property before 1 July 2027?

Why supply remains a major issue

One of the key themes supporting property prices has been Australia's ongoing housing supply shortage.

The National Housing Supply and Affordability Council (NHSAC) has noted that housing supply constraints are expected to persist across several parts of Australia over coming years.

Construction costs, labour shortages, and planning delays have all affected the pace of new housing delivery.

At the same time, population growth has continued increasing demand for both owner-occupier housing and rentals.

This imbalance between supply and demand has been one of the major reasons many analysts believe housing prices have remained more resilient than expected.

However, housing supply challenges can affect buyers differently depending on where they are looking to purchase. Some outer suburban and regional areas may still experience different conditions from inner-city markets.

Could rate cuts change the outlook further?

Another factor many borrowers and investors are watching closely is the future direction of interest rates.

While lender forecasts vary, future monetary policy decisions will still influence housing activity alongside the ongoing effect of the Budget's tax changes.

If inflation moderates and rates eventually stabilise or fall, borrowing conditions may improve. However, any uplift to buyer demand would need to be weighed against the ongoing effect of the Budget's tax changes on investor activity.

However, economic forecasts can change quickly depending on inflation, employment, and global economic conditions.

For borrowers, this is why it may be helpful to focus on:

• repayment affordability

• financial buffers

• long-term property goals

• understanding different loan structures

• reviewing lending options regularly

Rather than trying to time the market, many Australians focus on finding a loan structure that supports their broader financial position.

What borrowers can take away from the forecast

Updated forecasts from CBA and Westpac IQ reinforce that Australia's property market remains complex, but complexity can create different opportunities and challenges for buyers, refinancers and investors who understand their options.

While higher interest rates can slow borrowing activity, supply shortages, migration and ongoing housing demand may continue supporting property prices in some areas.

For borrowers, buyers, and investors, the key takeaway may be that property decisions are rarely based on one factor alone.

Interest rates matter. But so do borrowing capacity, housing supply, personal financial circumstances and long-term goals.

Whether someone is buying their first home, refinancing an existing loan or exploring an investment opportunity, understanding current market conditions may help them make more informed decisions.

In a market like this, understanding your options can be just as important as understanding the headlines.

An Aussie Broker can help you cut through the noise, understand your borrowing power and explore loan options that suit your circumstances, whatever direction the market takes next.

Frequently asked questions