A market under pressure
Australia’s housing market is facing a broader slowdown as higher interest rates, tighter lending conditions, weaker sentiment and housing tax changes weigh on demand.
Commonwealth Bank senior economists Trent Saunders and Ashwin Clarke say sentiment has softened in recent weeks following the Federal Budget changes to negative gearing and capital gains tax.
“The tax changes have accelerated a slowdown that was already underway. Auction clearance rates have been falling since the RBA started its recent hiking cycle, price growth has continued to slow, and sales activity has softened,” Saunders and Clarke wrote.
Momentum is fading
Auction clearance rates are well below 2025 levels. Homes are also taking longer to sell, and sales activity has softened.
Price growth has slowed across most capital cities, with Sydney and Melbourne weakening the most and continuing to record falls. Perth, Brisbane and Adelaide are still growing, but at a slower pace.
Within cities, price declines have been sharper in higher-priced areas, including parts of Sydney’s east and north-west and Melbourne’s inner and outer east.
Forecasts revised lower
Saunders and Clarke have now downgraded their outlook, expecting national dwelling prices to be flat over 2026, down from forecasts of 3 per cent at Budget and 5 per cent earlier this year.
“We now expect national dwelling prices to be flat over 2026, down from a forecast of 3% at Budget and 5% in March,” they said.
They say the market reaction to the tax changes has been faster than expected, increasing the risk of a sharper near-term slowdown, but the long-term impact remains modest compared with interest rates, supply and population growth.
Lending expected to slow
The slowdown is expected to show up in housing lending, with demand already weakening in early 2026 and likely to ease further, particularly among investors.
New investor lending is expected to fall sharply over 2026, with loan volumes around half of late 2025 levels, reflecting lower expected returns, tighter borrowing capacity and more buyers choosing to wait and see.
Owner-occupier lending is also expected to slow, although this is more closely linked to higher interest rates than tax changes, with investor credit growth forecast to trough at around 3.5 per cent and owner-occupier growth at around 5.5 per cent.
Recovery expected in 2027
Despite the softer outlook in the near term, prices are expected to stabilise and begin to recover next year.
“Home prices should stabilise and lift in 2027 as lower prices and interest rates see borrowing constraints ease and higher rental yields bring buyers back into the market,” they said.
Over the longer term, Saunders and Clarke say the tax changes are likely to result in a one-off adjustment to prices rather than a lasting change in growth, with housing outcomes continuing to be driven more by interest rates, supply and population growth.
