House prices are falling, but first home buyers like Grace say corrections haven't helped

House prices are declining, yet first-time buyers such as Grace continue to face challenges. The 29-year-old resident of Wollongong, along with her partner, embarked on their home search this year, coinciding with the market's downward trend. Initially, they were open-minded about their budget, but learned that prices might be dropping due to recent tax changes.

However, their target area, the city in NSW's south coast, remains out of their price range. Grace expressed a compromise, stating that while the reduced prices make homes more accessible, high mortgage repayments remain a significant hurdle. She remains committed to purchasing a property with at least a 10% deposit. Another factor limiting their options is competition from buyers with more substantial financial support from their families.

Recent data from Canstar shows a substantial drop in borrowing power since the beginning of 2026, attributed to three consecutive interest rate hikes by the Reserve Bank of Australia (RBA). For individuals, borrowing capacity has decreased by an estimated $35,400, while couples have seen a reduction of $70,700. Each consecutive rate hike has had a further impact on borrowing capacity, with the total decrease amounting to $46,300 for individuals and $92,500 for couples.

While falling property prices might seem beneficial for those seeking to enter the market, higher interest rates continue to strain borrowing budgets. This situation presents a cycle of "one step forward and one step back" for prospective buyers. The RBA's next meeting on Tuesday may bring another rate hike, which would further tighten the budget for potential buyers.

The recent NAB Housing Monitor suggests that house prices in major cities, including Sydney, Melbourne, Brisbane, Perth, and Adelaide, are expected to continue declining. By December 2026, Sydney's median house price is projected to drop by up to $160,000, while other cities like Brisbane and Perth could see reductions of $28,380 and $17,200, respectively.

As a result, Hobart is anticipated to become the most affordable capital city for buying a property, at $807,260. However, homeowners who bought during the peak market may face negative equity, and potential buyers should be prepared for further interest rate hikes, even if the current trend suggests the peak has been reached.