Australia’s Property Market Faces a Longer Downturn as Big Four Banks Revise Outlook

Australia’s housing market is facing a prolonged period of weakness, with the nation’s major banks expecting property prices to remain under pressure through 2027 before a broader recovery takes hold.

The outlook from the Big Four banks comes as higher interest rates, tighter affordability and recent changes to property investment tax settings weigh on buyer demand. The shift marks a significant change from the stronger housing conditions seen across much of the market in recent years.

ANZ has forecast capital-city dwelling values to fall by 4.3% in 2026 and a further 3.4% in 2027, representing a peak-to-trough decline of around 10.6%. Sydney and Melbourne are expected to experience some of the largest falls, at 14.5% and 12.8% respectively.

NAB has also downgraded its housing outlook, with Sydney and Melbourne values forecast to decline by around 10% from peak to trough. The bank expects national capital-city prices to fall by about 5% in 2026.
The weakness is already becoming visible in lending activity. Recent data from the major banks shows mortgage applications falling sharply, with ANZ reporting a 12% decline and CBA and Westpac also recording significant reductions in lending demand.

Investor activity has been particularly affected. Australian Bureau of Statistics data showed investor lending fell 8.6% in the June quarter, while lending for established properties declined even more sharply. At the same time, lending for new dwellings increased, suggesting some investors are shifting towards new construction rather than existing homes.

Despite the near-term pressure, the banks are not forecasting a prolonged collapse. Australia’s structural housing shortage and constraints on new construction are expected to provide longer-term support for prices, while lower interest rates could help demand recover once inflationary pressures ease.

For the property sector, the outlook points to a period where affordability, borrowing costs and changing investor behaviour are likely to have a greater influence on market performance than the rapid price growth seen during the previous cycle.

The key question is now how long the correction lasts, and how quickly buyers and investors return once financing conditions begin to improve.

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Originally posted on LinkedIn