NAB warns housing downturn only a third done

National Australia Bank (NAB) believes Australia's housing correction still has a long way to run, with the current slide in prices only around a third of the way through its cycle. That's a longer runway than many in the market had priced in, and it puts brokers squarely in the middle of some difficult client conversations heading into spring. 

Speaking at a bank event in Sydney this week, NAB chief economist Sally Auld (pictured) said dwelling values nationally have already dropped roughly 3% so far this year, with the bank forecasting an average capital city fall of about 7% peak to trough before the market stabilises – a process she said would take "the better part of a year" in total. 

Sydney and Melbourne are bearing the brunt of the falls. Perth, Brisbane and Adelaide are still recording annual gains, though NAB expects growth in those markets to flatten rather than reverse. 

Rate hikes and tax changes are compounding each other 

Three cash rate increases this year – in February, March and May – have pushed the RBA's cash rate target to 4.35%, unwinding 2025’s rate cuts and pummeling borrowing capacity. That's layered on top of the federal government's May budget changes, which scaled back the capital gains tax discount and tightened negative gearing rules for established properties. 

Auld's team now believes the tax changes are affecting investor behaviour more than initially modelled. NAB has separately estimated that rents in Sydney and Melbourne may need to rise by as much as 30% to fully offset investors' reduced tax concessions – a figure landlord clients weighing up whether to hold, sell or refinance are likely to be asking about. 

Together, the rate rises and tax changes mean borrowing power and property values are being squeezed at the same time: prices look softer, but reduced borrowing limits are eating into any apparent gain in affordability. 

Forecasters don't agree on how long it lasts

Not every economist shares NAB's timeline or its scale. 

ANZ is the most pessimistic of the group, tipping a 10.6% top-to-bottom fall in capital city prices with no meaningful recovery until 2028. Barrenjoey senior economist Johnathan McMenamin takes a more moderate view, arguing most of the damage so far has come from the interest rate rises rather than the tax reforms. He expects a typical downturn's usual eight-month span to stretch closer to 12 months here, with prices bottoming late this year and starting to firm again in early 2027 as thinner spring listing volumes offset weak demand. 

Ray White chief economist Nerida Conisbee is the outlier on scale, doubting the market will see a 7% national fall at all. She describes the downturn as a three-stage process: an initial uncertainty-driven freeze - which she believes is the current phase, marked by weak auction clearance rates and thin transaction volumes - followed by a second phase once another rate rise looks unlikely, and a third phase only once the RBA begins cutting rates. 

AMP chief economist Shane Oliver lands closer to NAB on magnitude, saying that "it's still early days in the downturn" while pointing to a similar 7% national peak-to-trough estimate. He's stopped short of calling it a crash, citing a persistent housing shortage, cautious sellers and the expanded first-home buyer deposit scheme as factors likely to cushion the fall. 

It’s not all doom and gloom though - dwelling values are still 5.3% higher nationally than a year ago, propped up by Perth (+20.5%), Brisbane (+14.8%) and Adelaide (+10.5%). Sydney (-2%) and Melbourne (-2.8%) are the only capitals dragging the annual figure down. 

What this means for broker conversations 

Finsure CEO Simon Bednar has argued that "the role of a broker has never been more important" as clients navigate the tax changes - a claim that applies just as directly to the price falls NAB is now flagging. For mortgage and finance brokers, the numbers translate into three practical issues worth raising with clients now. 

Recent low-deposit buyers are the most exposed. Commonwealth Bank has already flagged the negative equity risk facing recent buyers in Sydney and Melbourne under similar peak-to-trough assumptions. If NAB's 7% figure plays out, borrowers who used the Home Guarantee Scheme with a 5% deposit could be looking at thin or negative equity by year's end - worth flagging early rather than waiting for a valuation surprise at refinance time. 

Borrowing capacity hasn't kept pace with softer prices. Each rate rise this year has reduced how much clients can borrow, even as list prices ease - so a cheaper-looking property doesn't automatically mean an easier serviceability outcome. Loan Market Group executive chairman and CEO Sam White told MPA that "the last six months have been challenging for many buyers," pointing to first-home buyers as the group hit hardest by reduced borrowing power. Clients weighing whether to buy now or wait may need a refreshed borrowing capacity assessment before making that call. 

Investor clients face a hold-or-sell decision. With NAB flagging potential rent rises of up to 30% in Sydney and Melbourne as an offset to reduced tax concessions, landlord clients may be reconsidering loan structures, interest-only terms or whether to sell into a softer market before conditions tighten further. 

The next real test comes with the Reserve Bank's next scheduled monetary policy meeting on 29 September, and the spring selling season more broadly - both likely to reshape expectations on how deep, and how long, this correction goes.