The great property debate: crash, correction or comeback?

Australians have spent a decade complaining that housing has become impossibly unaffordable. Now that prices are falling, the country is discovering an uncomfortable truth: not everyone wants them to.

Figures from Cotality released in early August showed the average national home price fell 0.7 per cent in July to $928,421, the biggest monthly decline since December 2022. It capped a correction that began with rising interest rates and was amplified by the Albanese government’s overhaul of investor tax concessions. National dwelling values now sit about 2 per cent below their March peak.

But that headline number conceals a market pulling apart at the seams.

The correction is being driven overwhelmingly by Sydney and Melbourne, where values have fallen around 5.5 per cent, while Perth, Brisbane, Adelaide and Darwin have, until very recently, kept climbing. What is unfolding is less a single national downturn than several regional stories running at once.

A fragmented national picture

The correction’s weight sits on the east coast.

Over the June quarter, Cotality had Sydney values down 3.2 per cent and Melbourne down 2.6 per cent, with the ACT off 1.3 per cent and the pain concentrated at the top end of the market.

In the three months to July, prices for Sydney’s most expensive quartile of homes fell 5.2 per cent against just 1.4 per cent for the cheapest, with Melbourne showing the same pattern.

AMP chief economist Shane Oliver attributes the resilience of cheaper homes and units partly to the government’s expanded 5 per cent deposit scheme, which has pulled first home buyers into the lower brackets sooner. Buyer sentiment remains deeply subdued: the Westpac-Melbourne Institute “time to buy a dwelling” index sat at 85.4 in July, well below its long-run average of 119, and the median time to sell has climbed to a five-year high of 34 days.

The smaller capitals tell a more varied story.

Adelaide looks steady in the official data, Cotality had values dead flat in June, but local agents report prices already down 4 to 5 per cent in parts of the city as investors retreat.

Manpreet Dhillon of SMD Property Buyers Agency said, “50 to 60 per cent of investors are out of the market right now.”

Perth, by contrast, capped the 2025-26 financial year with a 16.3 per cent jump in its median house price to a record $930,000, and Brisbane continues to draw price-supporting interstate migrants (more than 16,500 over the past year), even as New South Wales shed more than 21,000.

Momentum is fading even in the strong markets.

REIWA president Suzanne Brown flagged Perth’s June quarter as “an important turning point”, with new listings exceeding their five-year average and demand softening “following three consecutive interest rate increases, rising living costs, geopolitical uncertainty and the Federal Government’s taxation changes”.

Ronald Chan, Chief Executive, Finbar Group, was not convinced the downturn was a national one.

“Slowing from a position of strength is a different proposition to falling from an already weakening one,” he wrote, calling the slowdown “a pause in pace, rather than a change in direction”.

KPMG’s forecasts capture the divide neatly. It tips Sydney and Melbourne house prices to fall 4.4 and 5.0 per cent in 2026, even as Brisbane grows 4.6 per cent, Adelaide 5.3 per cent, Perth 6.4 per cent and Darwin 8.2 per cent.

Crash, correction, or healthy reset?

How bad it gets depends on who you ask, and the forecasters are openly divided.

At the gloomier end, NAB now expects capital city prices to fall 5 per cent in 2026, driven by declines approaching 10 per cent in Sydney and Melbourne.

Chief Economist Sally Auld said recent data “has left the risk skewed firmly to the downside” of the bank’s earlier forecasts. AMP’s Mr Oliver has floated the most structurally bearish scenario that the 30-year property “super cycle” may be ending under the weight of higher rates, reduced tax concessions, record-poor affordability and lower immigration, which could mean “a decade or so of real house prices ranging sideways”.

Brendan Rynne, Chief Economist, KPMG, is markedly more upbeat, forecasting a “V-shaped” recovery in which Sydney and Melbourne recoup most of this year’s losses in 2027.

“We are in a downswing that will last for a little more this year,” he said, “but … the property market fundamentals, that we’re simply not building enough housing to satisfy demand, will activate the brake on how far prices will fall”.

For context, UBS Economist Stephen Wu notes the average correction since the early 1990s has lasted about 13 months for a peak-to-trough fall of roughly 5 per cent.

Four months in, capital city prices are down 2.8 per cent, far shallower than the 8.1 per cent drop of 2022-23.

Analyst Cameron Kusher offers a blunt reality check: the current dip follows a 27.9 per cent surge over five years.

“Even in an inflationary environment, the market isn’t and shouldn’t be immune to price falls, particularly when it becomes unaffordable like it is right now.”

On the ground, some see recovery already stirring. Ray White’s Chief Auctioneer, Luke Banitsiotis, insists it is “softening, but it’s certainly not crashing”.

The fundamentals under the floor

For all the bearish noise, one phrase recurs in almost every optimistic assessment: the fundamentals remain strong.

The biggest support is the chronic gap between housing demand and supply. Australia remains well short of the roughly 240,000 homes a year required under the National Housing Accord, and Mr Oliver estimates an accumulated shortfall of 200,000 to 300,000 dwellings.

David Cummins, Managing Director, Future Property Group, frames it as a delivery failure, not a demand one, after commencements fell 11.2 per cent in the March quarter.

Independent economist Justin Fabo agrees the shortage will cushion the fall: vacancy rates remain very low and advertised rents grew 5.9 per cent nationally in the year to July.

“Employment is holding up too, with wage growth steady at 3.1 per cent and unemployment historically low, which for housing matters more than almost any other indicator.”

The political property headache

That leaves the government in an awkward spot.

The correction has been amplified by its own May budget changes to negative gearing and the capital gains tax discount, measures Treasury had advised would just slow price growth, not cause outright falls.

From 1 July 2027, negative gearing on residential investment properties will be limited to new builds, a policy designed to redirect investor demand toward new supply.

The politics are treacherous.

As RedBridge Director Tony Barry points out, the only cohort cheering falling prices are cashed-up first home buyers ready to pounce, which he said is “a very small segment of voters”.

For everyone else, a home is their biggest asset, and having claimed it could fix the market, the government now owns the outcome.

There is an emerging trap in its own success, too: the uncapped First Home Guarantee scheme drew 28,118 buyers into the market between October 2025 and February 2026, many buying near the peak with just a 5 per cent deposit, leaving some exposed to negative equity.

Deputy Prime Minister Richard Marles has tried to thread the needle, insisting Australians will still see “sustainable growth.”

The industry is furious. In an open letter to Treasurer Jim Chalmers, property figure Domenic Strangio accused the government of choosing “the easiest political target: investors” over tackling undersupply and planning bottlenecks.

He warned collapsing transaction volumes could gut state stamp duty revenue, pointing to Victoria’s roughly $9 billion in annual land transfer duty, which he claims could fall by close to $4 billion if volumes drop 40 per cent and predicted “major policy backflips.”

There is history here: Labor famously reversed a negative gearing change in 1987. Early signs suggest the policy may even be misfiring, pushing investors into the same new-build segment first home buyers rely on, while established homes in some areas have fallen more than 4 per cent since the budget.

What comes next for real estate?

If history is any guide, the optimists have the weight of evidence on their side.

Every Australian downturn since 1995, all nine of them, has eventually given way to a recovery that more than recouped the fall, with upswings averaging 2.8 years against 0.7-year downturns.

Domain’s cycle data has the current slump eerily matching the 2016 episode before a rebound.

But fundamentals are not guarantees. Affordability pressures, tax uncertainty, interest rates and fragile confidence will keep weighing on prices, and some markets are already overshooting.

What almost every analyst agrees on is the shape of it: a cyclical correction, unevenly distributed, rather than the kind of prolonged nationwide collapse seen overseas.

For now, Australia has not one housing market but many, with Sydney and Melbourne in retreat, Adelaide quietly turning, and Perth and Brisbane cooling from record highs.

The national average, as ever, tells you almost nothing about the street you live on.