"Paralysed" housing market faces a 20% decline

Australia's housing market is currently experiencing its most significant price drop in recent history. According to Cotality's daily dwelling values index, property values across the five major capital cities have decreased by 7.6% since early April, with Sydney leading the decline at 9.8%. The trend shows no signs of reversing, as values fell by 4.2% in just the last quarter. If this trajectory continues, dwelling values could approach a 10% decline from their peak by the end of the year.

In light of these developments, analysts are revising their predictions for house prices downward. Paul Bloxham, chief economist at HSBC, has projected that capital city dwelling values may face a peak-to-trough decline of 13%. Similarly, ANZ Bank has adjusted its forecasts, anticipating a 13.5% drop across capital cities, with Sydney, Adelaide, and Brisbane expected to experience declines exceeding 15%.

The ANZ economists noted, “The combination of rising interest rates, global uncertainty, and tax policy changes has dampened sentiment.” They highlighted that clearance rates have largely remained below 50% since May 2026, coinciding with the Labor government's budget announcement. Various indicators, including overall sentiment and the time properties spend on the market, point to a lack of demand.

While Sydney and Melbourne have been the hardest hit thus far, ANZ analysts have observed emerging signs that smaller capital cities are beginning to follow suit. Recent auction results have further fueled pessimism in the market. Cotality's preliminary national auction clearance rate fell to 48.4%, a decrease from the previous week's 51.2%, which was later revised down to 47.6% in final figures. This trend follows a series of weak outcomes, with the national final auction clearance rate remaining below 50% for 19 of the last 21 weeks. October is on track to become the weakest month for auctions since the early pandemic lockdowns.

Louis Christopher, managing director of SQM Research, expressed his concerns about the current state of the market in an interview with The Weekend AFR, stating that it is “extraordinarily weak.” He predicted a potential 20% price drop for Sydney, remarking, “In Sydney, the market’s in deep trouble. I think the final clearance rate is going to be the weakest recorded this year.”

Christopher pointed out that many sellers are reluctant to adjust their prices to meet buyers' expectations, who have become increasingly cautious due to fears of additional interest rate hikes. He added, “On this current tempo, we couldn’t rule out a 20% decline [in prices] from peak to trough in Sydney. It is that bad at this time.”

Tom Panos, a prominent auctioneer in Sydney, echoed Christopher's grim outlook in his Saturday market summary. Meanwhile, Nerida Conisbee, chief economist at Ray White, Australia's largest residential real estate agency, described the market as “paralysed.” She noted, “We’re seeing very low levels of open home attendance. We’re also seeing very few sellers coming to market. The market just seems paralysed, more than anything.”

As the situation evolves, the outlook appears increasingly bleak. The Reserve Bank is anticipated to raise interest rates further, with mortgage rates expected to exceed 7%. Additionally, a significant rise in unemployment is projected for the coming year, which could further strain mortgage holders and contribute to declining house prices.

With these factors at play, a housing price crash resembling the one experienced in New Zealand is becoming a more plausible scenario for Australia.