Australian house prices are now forecast to crash

House prices in Australia are projected to enter a significant decline, with the decline potentially reaching 14% from peak to trough, according to CBA. This forecast marks a stark contrast to the modest 8.5% drop from the April 2026 peak. The rate of decline has accelerated, with a 4.6% decrease over the past quarter across the five major capital cities.

The Reserve Bank of Australia's recent interest rate hike of 0.25% to a 18-year high of 4.85% has intensified the expectations of a sharper price drop. Banks now anticipate that national dwelling values will decline by 14% and that city-specific declines could reach 15%, with Perth, Brisbane, and Sydney potentially recording the steepest declines (-18%, -18%, and -16% respectively).

The median days on the market have increased notably in Perth and Brisbane, indicating a weakening demand. This downturn is expected to push the national gross rental yield to around 4.75%, as reported by AMP chief economist Shane Oliver. ANZ also updated its projections, suggesting a 13.5% decline across the capital cities, with Sydney, Adelaide, and Brisbane expected to fall by more than 15%.

The combination of factors like rising interest rates, global uncertainty, and tax policy changes has dampened sentiment, and the demand is weak. Although Sydney and Melbourne have been the most affected, the situation in smaller capitals is also deteriorating. With house prices already down by 8.5% from their peak, these forecasts indicate that we are likely only halfway through the downturn.

The outlook remains grim, suggesting that Australia may experience a property market crash similar to New Zealand's, with values plummeting sharply over an 18-month to two-year period, then trading flat for many years and declining in real, inflation-adjusted terms.