Dwelling prices fell 1.2% in October, marking a seventh straight monthly decline and the fourth consecutive fall of 1% or more. Dwelling prices are now 2.8% lower than a year ago, the weakest annual result since May 2023.
House prices are falling faster than prices for units, reflecting the affordability gap between the two. House prices fell 1.4% last month, compared with a 0.8% decline for units.
Since the market peaked in March 2026, dwelling prices have fallen 6.7%. Australia has not seen a housing downturn of this magnitude since the 2008-09 episode, and we expect this downturn will ultimately exceed it. The latest data shows the housing downturn continues to deepen and broaden.
Brisbane recorded the largest fall of any metropolitan capital city last month with dwelling prices down 2.0%, followed by Perth (-1.7%) and Sydney (-1.6%). But in year-on-year terms and measured from the most recent peak, the decline is largest in Sydney, where mortgages are also the biggest.
Across the combined capital cities, dwelling prices are now 8.1% below their March 2026 peak, having fallen 1.4% over the month and 4.8% over the year. Regional areas have been more resilient.
Four rate hikes, and the prospect of another tomorrow, continue to keep homebuyer sentiment in the doldrums. The Federal Government’s tax changes have added to the pressure on housing conditions.
The pesky inflation challenge is likely to see the RBA tap on the brakes again tomorrow, taking the cash rate from 4.60% to 4.85%. The bigger question is whether one more rate hike will be enough to bring inflation back into the target band over time. It should be, but we can’t be fully convinced. Part of that uncertainty reflects the difficulty in knowing how the Middle East conflict will evolve. Australia’s inflation challenge is certainly not solely the result of global geopolitics, but it is part of the picture.
Dwelling prices are unlikely to steady until the market is convinced rate hikes are done and dusted. And it is difficult to see a meaningful recovery taking hold until rate cuts come into view.
Leading indicators, particularly residential auction clearance rates, suggest there is little stability in sight and more weakness is likely. The four-week moving average clearance rate for the combined capital cities stood at just 45.6% last weekend. This time last year, it was over 70%!
The labour market is also becoming a more important headwind. The unemployment rate rose to a near-five-year high of 4.7% in September. We expect it will rise further and breach 5% over the next 6 months. With a further hike in the cash rate also likely, housing demand is likely to remain soggy and house prices under downward pressure.
There are, however, forces that should eventually put a floor under prices. Net overseas migration remains elevated and the housing shortage persists, while high input and labour costs continue to constrain new supply. Some projects are being shelved or cancelled, effectively turning a share of building approvals into ‘zombie’ DAs. A floor will be reached at some point, but we are not there yet.
Taken together, we think this downturn has further to go. We expect dwelling prices to fall by around 12% from peak to trough before stabilising with the balance of risks tilted towards a deeper decline of around 15%. We have revised our forecasts modestly lower given the weakness of recent data and now expect dwelling prices to fall around 6% this year and a further 2-3% next year, compared with our previous forecasts of 5% and 1%, respectively.
Arguably, some of the greatest pressure is being felt by low-income renters. Rent increases have slowed as households’ capacity to absorb further rent rises becomes increasingly stretched. Meanwhile, the gross rental yield has risen to 3.77% in October, the highest since May 2015, according to the latest Cotality data. Even so, the yields are unlikely to be sufficient to generate positive, or even neutral, cash flow for many housing investors.
Disclaimer
This report has been prepared for general informational purposes only and does not constitute personal financial advice. It does not take into account your specific objectives, financial situation, or needs. Before acting on any information in this report, you should consider its appropriateness in light of your circumstances and seek independent financial advice. The author holds, or may hold, positions in some of the securities mentioned in this report. These holdings may represent a potential conflict of interest. No representation or warranty is made as to the accuracy, completeness, or reliability of the information contained herein. Past performance is not a reliable indicator of future performance.
