Bank sees stabilisation as a 2027 story, with Sydney hardest hit
Westpac now expects house prices to fall 7.3% from peak to trough, a correction on par with the 2022 downturn, after downgrading its forecasts on 25 September 2026.
The bank's September 2026 Housing Pulse puts the decline across the five major capital cities for calendar 2026 at 6%, double the 3% fall it forecast in June. It also expects home sales to drop 24%, up from its earlier estimate of 20%.
Westpac Economics said the downturn is now both wider and sharper than it was three months ago. National prices fell 3.8% in the three months to August, about 0.6 percentage points of which was seasonal, leaving them 4.7% below their peak. Annual price growth has slowed to 1% and is likely to turn negative in September.
Rates and sentiment weigh on demand
The bank expects the Reserve Bank (RBA) to lift the cash rate by 25 basis points at its September meeting, with a clear risk of a further rise. Westpac forecasts the cash rate at 4.6% by December 2026. It said stabilisation is unlikely while rate rises continue and pushed any recovery into 2027.
"The run into year-end is shaping as a particularly nervy one for housing markets," the report said.
Sentiment remains soft, with the house price expectations index at 110.3, well below its long-run average of 126. Property investors are leading the slowdown in lending. Investor credit growth, which peaked above 10% a year, has slowed to an annualised 8.5% over the past three months.
Regulators are also paying closer attention. Westpac said the Council of Financial Regulators' September meeting flagged two risks: lenders loosening their standards as they compete in a shrinking market, and borrower stress spreading into the wider financial system. It said there was little sign of either so far.
Mortgage arrears edged up in the data to July, Westpac said, and loans that fall behind are finding it harder to get back on track. Stress is slightly higher in Victoria, where unemployment has risen to 5.2%.
Sydney and Melbourne lead, but supply limits the fall
Westpac expects Sydney prices to fall 10% in 2026 and Melbourne prices 8%. Brisbane, Adelaide, and Perth are still forecast to record small gains of 2–3%, and Hobart 4%. Nationally, the bank tips a 3% recovery in 2027.
CommBank economists expect a deeper correction, forecasting a peak-to-trough fall of around 9%, and say their predicted 2% rise in 2027 depends partly on RBA cuts in May and August.
Westpac said tight supply should stop the correction from getting much deeper. Just 1.2% of all dwellings are currently listed for sale, well below the 20-year average of 1.8%, and there is little sign of forced selling. It expects buyers, not sellers, to return to the market first.
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