Australia Housing Slump Deepens as House Prices Fall for Seventh Month

Australian home values fall for seventh consecutive month

Australian home values fell for the seventh consecutive month, with capital city prices dropping at their fastest pace in 40 years as rising interest rates dent buyer demand. Combined values across state and territory capital cities dropped 1.4% over October, according to data from property research group Cotality.

The downturn is shifting away from Sydney and Melbourne toward mid-sized capitals. Brisbane and Perth led the declines in October, with Perth’s dwelling prices dropping 5.7% over the previous three months to a median of $942,018, according to Cotality.

Rising interest rates alter housing market dynamics

High interest rates remain the most significant downside influence on the market, driving a negative wealth effect that dents consumer sentiment. The Reserve Bank of Australia raised the cash rate by 0.25 percentage points to 4.85%, its highest level since 2008, amplifying borrowing pressures for prospective buyers.

Morgan Stanley forecasts peak-to-trough drops of up to 15% nationally, while Commonwealth Bank economists expect Perth property prices to plummet 18% from their April peak before stabilizing in the second half of 2027. Australian home prices first began to decouple from wages in the late 1980s, setting off decades of affordability challenges compounded by investor-friendly tax settings.

Homebuyers face shifting conditions across capital cities

For prospective buyers such as Vanessa Bray in Perth, the drop of nearly $100,000 from April’s peak offers a chance to enter the market under the federal government’s $850,000 Help to Buy Scheme cap. Rob Mandanici noted that the slowing market gives buyers more breathing space to make selective purchasing decisions without feeling immense pressure to rush.

At the same time, rental pressures are beginning to ease. National vacancy rates are rising and rent growth is slowing, although rents remain up more than 50% over a six-year period. Analysts attribute the rising vacancy rate to changing household dynamics as affordability constraints push more renters to share homes or move back in with family.

Frequently asked questions about the housing downturn

What is driving the shift in capital city housing markets?

Rising interest rates are the primary driver of the downturn, reducing borrowing capacity and creating a negative wealth effect that weakens market sentiment. Cotality research director Tim Lawless also points to longstanding affordability challenges and a pullback in investors due to tax changes.

How far are Perth property prices expected to fall?

Commonwealth Bank economists forecast that Perth property prices will drop 18% from their April peak of over $1 million before prices begin to stabilize in the second half of 2027.

Are price drops affecting the rental market?

Rental pressures are easing slightly as national vacancy rates rise and rent growth slows. Analysts link the rising vacancy rate to affordability shifts, with more renters sharing homes or moving in with family rather than living alone.

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