Market downturn deepens as values tipped to fall 10%

According to the Commonwealth Bank of Australia’s (CBA) latest economic insights, the property market downturn is expected to bring prices down by 10 per cent before stabilising.

Nationally, the bank has tipped dwelling prices to fall by 9 per cent, with the downturn to continue until April 2027.

Over the remainder of 2026, CBA has tipped dwelling prices to fall by five per cent nationally and six per cent across the capitals.

CBA senior economist Trent Saunders said the adjustment to their previous June forecast was driven by several important developments in the property market.

“Housing market momentum has been significantly weaker than expected over the past three months, and we expect further declines in the coming months,” Saunders said.

“Price declines have broadened to the mid-sized capitals, where tight demand-supply balances have provided less support than we initially expected, and our outlook for interest rates is now higher than it was in June.”

Sydney and Melbourne

Saunders said that Sydney and Melbourne recorded the largest declines, where supply-demand conditions were less supportive than in the mid-sized capitals.

He said that CBA now expected Sydney’s dwelling prices to fall by 11 per cent over 2026, with a peak-to-trough decline of around 13 per cent.

“This would mark one of the quickest and deepest downturns in the Sydney housing market in at least the last 20 years,” Saunders said.

Similarly, Melbourne was forecast to fall by 10 per cent over the year.

CBA predicted that once the downturn had passed, the subsequent recovery period would be quite modest, with values in the Victorian capital climbing by just 1 per cent.

The bank forecast a similar outlook for Sydney, with the capital bouncing back by just 1 per cent over the timeline of the bank's prediction

Mid-sized capitals

While the decline was largest across Sydney and Melbourne, Saunders said the mid-sized capitals had been more resilient to the downturn.

Spurred on by strong underlying demand, Saunders said that in the June update, CBA had forecast Brisbane, Perth, and Adelaide to maintain a modest level of growth for the remainder of 2026.

“Instead, all three markets have now recorded consecutive monthly falls,” Saunders said.

He said that while the fundamentals to support long-term performance remained, it was unlikely that the capitals would see the same strong performance in the near future.

“While the underlying supply-demand imbalance remains, we do not expect the earlier rates of exceptional growth to return over our forecast horizon.”

Despite forecasting a peak-to-trough fall of around eight per cent across the mid-sized capitals, Perth was still expected to see price growth remain flat over 2026.

Similarly, because of their strong performance at the beginning of the year, Brisbane and Adelaide were tipped to record a modest one per cent fall.

What’s next?

Saunders said the outlook for interest rates had also weighed on the housing market, with most major banks accelerating their timelines for another rate rise.

Despite the economic headwinds that continue to stifle the property market, Saunders said the downturn would eventually run its course.

“Falling prices should improve affordability and increase rental yield, drawing some buyers back into the market.”

Looking forward, Saunders said the anticipated easing of monetary policy in 2027 should provide some support.

“These factors should eventually help the market stabilise, but they are unlikely to prevent a deeper cyclical adjustment through the first half of next year.”

“The weaker momentum in recent months, the higher interest rate outlook and our reassessment of the mid-sized capitals leave us expecting a materially lower trough in dwelling prices and a more subdued recovery than our forecast from just three months ago.”