A growing chorus of financial insitutions and property research groups has warned Sydney’s real estate downturn could extend well into next year and cut deeper than originally expected.
Australia’s most expensive housing market is facing one of its sharpest downturns in years, with Sydney house prices already falling and forecasts pointing to further declines through the rest of 2026.
PropTrack’s latest Home Price Index shows Sydney prices fell 0.5 per cent in June, driven by three interest rate rises, tax changes and weak auction clearance rates.
The consensus among most forecasters is that property prices could fall by about 3-9 per cent across 2026, with some warning the downturn could continue into 2027.
MORE: Epicentre of Sydney’s collapsing home prices exposed
Many forecasts suggest Sydney home values could decline around 3 to 9 per cent across 2026
SQM Research director Louis Christopher said Sydney home values could drop by as much as 9 per cent this calendar year.
“Our view is that this downturn is likely to be with us for two years,” he said.
“If we were to see an interest rate cut – potentially we wouldn’t see the falls that we have forecast for this calendar year, but … I think that’s highly unlikely.”
Mr Christopher said units were holding up better than houses, continuing a pattern seen across property cycles where units tend to outperform in downturns, while houses lead during growth periods.
Next year’s prices would largely depend on interest rate changes, Mr Christopher added. A cut would boost the market, but a rate rise in the second half of 2026 “would not bode well for 2027,” he said.
Louis Christopher
ANZ is forecasting an 8.4 per cent decline for Sydney house prices this year, followed by a 2.9 per cent decline in 2027.
ANZ economist Madeline Dunk said Sydney’s market’s been slowing for some time.
“Sydney is quite a rate sensitive market,” she said. “We’ve had three rate rises from the RBA, there’s been this geopolitical uncertainty with everything happening in the Middle East and then you add on top of that, the announcements in the recent budget, and it’s really dented sentiment.
“The downturn looks pretty ingrained, auction clearance rates are very soft in Sydney and we look at clearance rates as a leading signal for housing prices.
“You’re going to see that downturn continue over the coming months.”
MORE: New report: Aus home prices drop again
ANZ economist Madeline Dunk said Sydney’s market is slowing.
Commonwealth Bank of Australia (CBA) released its yearly forecast in June, tipping a 6 per cent decline for Sydney house prices this year.
CBA senior economist Trent Saunders added the “risk” for forecasts is that the declines could end up being larger than expected.
“Over the course of this year prices could come in a bit lower than what we’re expecting, even though we are already expecting a fairly large decline of 6 per cent over the course of this year,” he said.
Mr Saunders said although its evident this year will be weak, the bigger question is what will happen to prices next year. CBA’s forecast for 2027 is that Sydney will see a turnaround with a price rise of 3 per cent.
“This is based on our view that the RBA will start to cut rates from May next year,” he said.
“If that doesn’t happen, if those rate cuts don’t come through, then there’s a question mark about whether that recovery ends up taking place.”
CBA economist Trent Saunders.
AMP chief economist Shane Oliver said price falls were predicted around 8 per cent for the calendar year and about 8 per cent for the financial year.
“Prices are coming down for about four reasons,” he said.
“One is the rise in interest rates, second is the tax changes for investors, keeping the investors away, the third is poor affordability that was an issue after prices reached record highs last year.
“Then there’s been a hit to confidence from the war and various other things, but obviously the first two are the main reasons.”
AMP economist Shane Oliver. Picture: via Yellow Brick Road on YouTube.
Mr Oliver said cheaper property tends to hold up a little better as Sydney navigates the downturn.
“Units are holding up a little bit better – there’s a bit of an affordability crunch on it,” he said.
REA and Westpac are both tipping Sydney’s house price decline this year to be around 3 per cent.
“The cost of borrowing obviously has increased off the back of higher interest rates, but I think we’re also seeing a lot of uncertainty in the market around what’s going to happen to home prices,” said REA Senior Economist Anne Flaherty.
“Buyers are becoming a bit more cautious and if we look at auction clearance rates, which have very clearly moved lower and are now sitting in the low 40 per cent for several weeks nationally. That’s a pretty clear sign that there’s a bit of a misalignment between buyer and vendor expectations, which normally precedes price falls.”
REA Group economist Anne Flaherty said Sydney’s higher prices made it more vulnerable to interest rate hikes.
Ms Flaherty said Sydney can be more susceptible to these price falls due to being the most expensive capital city in the country, meaning the average homeowner in Sydney has a larger mortgage.
“The dollar value impact of an interest rate rise is typically higher for people in Sydney compared to elsewhere in the country,” she said.
Ms Flaherty added there are also signs that investors are pulling back due to tax changes, that will reduce overall demand and expected to flow into lower home prices in the second half of 2026.
REA is forecasting 4% rise in prices and CBA a 3% rise for 2027. Picture: Gaye Gerard
Looking ahead, several forecasts expect Sydney’s house prices to bounce back in 2027, particularly if interest rate cuts begin to flow through, with REA forecasting a 4 per cent for the year and CBA a 3 per cent rise.
Ms Flaherty said the underlying fundamentals of the property market suggested the longer-term outlook for prices over the coming years was further increases.
“Even if we do see prices come down this year, taking a longer term view we still have a significant under supply in most of our capital cities,” she said.
“If we look at the total number of new homes being built compared to government forecasts for population growth, we’re likely to continue seeing fewer homes built than is required to house a growing population for the next couple of years.
“Until that story turns around, what happens with interest rates, what happens with tax settings, they’re going to only have so much of an impact on prices. Longer term, it’s that supply and demand piece that will really dictate where prices move.”
English (US) · 