Bank forecasts Sydney and Melbourne house price declines of up to 7%, threatening recent low-deposit buyers' equity
The Commonwealth Bank of Australia (CBA) has warned that first-home buyers who entered the Sydney and Melbourne markets this year with minimal deposits could find themselves in negative equity before year's end, as the nation's largest lender revised its property price forecasts downward.
CBA now predicts Sydney dwelling prices will fall 6% across the 2026 calendar year and Melbourne prices will drop 7% — declines that could leave buyers who purchased under the federal government's Home Guarantee Scheme with little to no equity buffer.
The revised outlook follows three consecutive cash rate increases and proposed federal housing policy changes. Despite the projected near-term weakness, CBA expects both markets to recover in 2027, underpinned by two anticipated RBA rate cuts.
Perth and Brisbane are forecast to continue outperforming, with CBA's economists tipping annual price gains of 12% and 8% respectively.
| Dwelling price forecast | ||
|---|---|---|
| Capital city | 2026 forecast | 2027 forecast |
| Sydney | -6% | +3% |
| Melbourne | -7% | +3% |
| Brisbane | +8% | +4% |
| Perth | +12% | +4% |
| Adelaide | +6% | +3% |
| Hobart | +4% | +2% |
| Canberra | -2% | +3% |
| Darwin | +8% | +3% |
| Source: CBA | ||
Analysis by Canstar.com.au illustrates the exposure facing recent entrants. A buyer who purchased a $1.5 million Sydney property — the maximum eligible under the Home Guarantee Scheme — with a 5% deposit could be left with negligible equity by December. In Melbourne, a 7% annual price decline could push a similarly positioned buyer into negative equity by year's end, despite 12 months of principal and interest repayments.
Interest rates are expected to remain restrictive for the remainder of the year. Westpac and NAB each anticipate at least one further rate rise, while CBA now expects the RBA may cut in May and August 2027, returning the cash rate to 3.85%.
"For aspiring buyers who've spent years watching house prices run away from them, forecasts of falling prices in Sydney and Melbourne might sound like welcome news," said Sally Tindall (pictured right), data insights director at Canstar.com.au. "However, for those who only recently scraped together a deposit to get into the market, these declines could leave them dangerously close to negative equity.
"A buyer who purchased with a 5% deposit at the start of this year has very little buffer against falling property prices. If CBA's forecasts play out, some recent buyers in Melbourne could owe the bank more than their home is worth by the end of the year, despite making their mortgage repayments on time.
"Negative equity isn't necessarily a crisis if you plan to stay put and keep making repayments, but it can become a major problem if you're forced to sell or want to refinance."
Tindall cautioned against reading the forecasts as a sign of a property market crash or long-term downturn. "Sydney and Melbourne prices are expected to start rising again in 2027, while markets such as Brisbane and Perth are expected to keep on defying everything in their path and post hefty gains," she said.
"In fact, the bigger challenge for many Australians remains affordability. A six or seven percent fall in house prices might sound significant, but when you're talking about markets that have seen years of strong growth, combined with three cash rate hikes eroding borrowing capacity, it's unlikely to suddenly make home ownership easy.
"CBA's forecast of two cash rate cuts next year would provide some welcome relief for borrowers if they materialise, but it will be a long time coming and might not happen at all in 2027. What's particularly striking is how divided the banks have become on the outlook for interest rates. While CBA is forecasting cuts next year, Westpac and NAB are both tipping a further hike, two in the case of Westpac. Borrowers should prepare for a range of scenarios rather than assuming rate relief is locked in."
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