Record listings contribute to negative equity fears

Australia’s housing market is entering a more buyer-friendly phase, with a surge in listings giving purchasers more choice while raising the stakes for recent buyers who entered the market with small deposits.

Domain’s July Market Insights, released Tuesday (11 August), found total housing supply across the combined capital cities had reached its highest level in seven years, while new listings hit a record July high. At the same time, SQM Research recorded a 12.4 per cent monthly increase in national listings to 278,984 dwellings, putting available stock 22.8 per cent above July 2025 levels.

The increase is occurring at a time when demand is weakening and properties are taking longer to sell.

SQM Research’s Managing Director, Louis Christopher, said the simultaneous increase in new and older listings was particularly noteworthy, describing it as the pattern typically seen in housing downturns.

“More properties are coming onto the market, but they’re also taking longer to sell,” he said.

For existing homeowners, softer prices may simply represent a paper loss. For buyers who borrowed heavily with a small deposit, however, a substantial fall in values can erode or eliminate their equity.

Canstar analysis released alongside ANZ’s latest property forecasts highlights how quickly that could happen.

ANZ is forecasting a peak-to-trough fall of 14.5 per cent in Sydney house prices, 12.8 per cent in Melbourne, 7.9 per cent in Brisbane, 9.8 per cent in Adelaide and 5.2 per cent in Perth.

If those forecasts are realised, Canstar estimates the median Sydney house price could fall by $236,312 from its January 2026 peak, while Melbourne could lose $127,577. Brisbane, Adelaide and Perth could see declines of between $56,000 and $99,000.

While all property forecasts are notoriously fickle, they do demonstrate the vulnerability of highly leveraged buyers if prices fall materially.

Small deposits leave little room for error

Canstar’s modelling shows the issue particularly clearly for buyers who entered the Sydney market at its January peak.

A purchaser of the median-priced Sydney house with a five per cent deposit could already be in negative equity following the 5.9 per cent year-to-date decline recorded by Cotality.

If ANZ’s forecast is realised, that buyer could have negative equity of about nine per cent by mid-2027, owing an estimated $128,322 more to the bank than the property is worth.

A buyer who started with a 20 per cent deposit would still have an estimated eight per cent equity stake under the same scenario.

The risk is becoming more relevant because low-deposit lending has surged. APRA data analysed by Canstar shows banks approved $10.2 billion in new owner-occupier mortgages with deposits of five per cent or less in the six months to March 2026, representing a 51 per cent increase on the previous six months and the highest level recorded.

Sally Tindall, Canstar’s Data Insights Director, said the combination of falling prices and increased low-deposit lending was particularly concerning for recent buyers.

“If these forecasts prove accurate, some recent buyers in Sydney could find themselves owing the bank more than their home is worth before they’ve even celebrated their first anniversary as a homeowner,” she said.

Negative equity does not automatically mean financial disaster. A borrower who can continue making repayments and remain in the property can potentially wait for the market to recover.

The problem is flexibility. Negative equity can make it harder to sell without contributing cash to cover the shortfall, while refinancing can also become more difficult.

More listings shift power towards buyers

The supply story is becoming increasingly important because the deterioration in conditions is not being driven by a wave of distressed selling.

Domain reported distressed listings remain historically low, suggesting the increase in available stock is primarily reflecting weaker demand rather than widespread forced sales.

SQM Research, however, recorded distressed listings rising 1.6 per cent nationally in July and moving 0.9 per cent above the same month last year. It’s an early indicator worth watching if softer prices persist.

The broader listings picture is already shifting negotiating power towards buyers. Melbourne’s total listings rose 15.5 per cent in July and were 42.8 per cent higher than a year earlier. Brisbane listings increased 18 per cent over the month, while Sydney was up 6.6 per cent and 28 per cent annually.

Auction clearance rates across the combined capitals improved to 49.1 per cent, but remained the weakest July result since 2005. Auction withdrawals also reached 15.9 per cent, their highest level since April 2020.

Yet the increase in supply does not mean every market is heading towards the same outcome.

Adelaide remains comparatively resilient, with demand continuing to absorb record new supply, while Perth continues to outperform historical norms on the back of strong demand and a tight rental market.

Julie Kelley, Head of Sales and Marketing at aussieproperty.com, said the downturn was real but should be considered against the substantial gains recorded across much of the country in recent years.

“Buyer demand has fallen, transaction volumes have slowed and price declines have spread across the country,” she said. “Total capital city listings are now 5.7 per cent above the five-year average, giving buyers more choice and reducing the urgency that characterised the market previously.”

Ms Kelley, however, said the current correction followed an extraordinary period of growth.

“Over the past five years, dwelling values increased substantially; Perth housing values rose by almost 90 per cent and Brisbane more than 75 per cent. Melbourne was the exception, recording only marginal growth.”

That history is relevant when assessing the risk of a broader housing collapse. A fall from an elevated peak is not necessarily the same as a fundamental deterioration in the long-term investment case.

“Property should generally be viewed as a long-term asset,” Ms Kelley said.

“A short-term correction does not necessarily undermine an investment strategy with the strongest returns realised after 10 years or more.”

She pointed to population growth, housing undersupply and continuing demand for home ownership as fundamentals that remain in place despite weaker sentiment.

“The market is correcting, but talk of a nationwide property collapse is overblown,” Ms Kelley said.

“Australia’s underlying fundamentals, including population growth, housing undersupply and enduring demand for homeownership have not disappeared.”