A potent combination of a record-breaking surge in new housing supply and ongoing interest rate hikes is set to trigger an unprecedented property price downturn, with new modelling pinpointing the September 2027 quarter as the moment the market will feel the pinch.
Research from HomeLoanRates.com.au, conducted by Primara Research, reveals a staggering 54,000 new homes were added to the market in the December 2025 quarter.
This represents the largest single-quarter increase in residential dwelling stock since 2016, a substantial 25 per cent above the average quarterly supply.
While such a massive influx of new housing might suggest an immediate market reaction, Primara’s analysis highlights a crucial seven-quarter lag before the full weight of the supply surge is felt in property prices.
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This delay means that while the December 2025 supply figures are already in the rearview mirror, their profound effect on prices is yet to materialise.
Had supply growth maintained its average quarterly rate, the September 2027 quarter might have seen a national price increase of 1.15 per cent.
Source: Primara Research
Instead, the record supply is now forecast to result in a 0.32 per cent decline nationally, a dramatic 1.47 percentage point swing illustrating the immense influence a single, above-average supply quarter can wield.
However, the national picture masks a deeply divided market, a “tale of two housing markets” as Peter Drennan, Director of Primara Research, describes it.
New South Wales and Victoria, which together account for approximately 57 per cent of national dwellings, are identified as the most supply-sensitive and rate-sensitive markets, and will be the primary drivers of the national downturn.
New South Wales is forecast to see modest price growth of just 2.4 per cent over the 18 months leading to a median of $1.33 million, with a quarterly decline of 1.49 per cent arriving as early as June 2027.
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Source: Primara Research
Victoria is predicted to experience a 1.44 per cent fall in the September 2027 quarter, with multiple negative quarters throughout 2026, culminating in a cumulative 21-month decline of 1.5 per cent, bringing the median to $919,400.
Tasmania and the ACT are also expected to face more modest declines of 0.3 per cent and 0.7 per cent respectively over the seven-quarter period.
Conversely, markets less exposed to this supply surge are projected to continue their robust growth.
Queensland is set for a 13.1 per cent increase, pushing its median to $1.206 million.
South Australia is forecast to climb 13.8 per cent to $1.067 million, while Western Australia leads the charge with a predicted 16.3 per cent rise to $1.179 million.
“The national headline will say prices are falling, but that obscures what is really a tale of two housing markets,” Mr Drennan said.
“NSW and Victoria are absorbing a double hit, reduced borrowing capacity and a supply surge that their markets are highly sensitive to.
“Meanwhile, the same rate environment is actively redirecting capital into Queensland, WA and SA.”
SQM’s dramatic reversal for eastern capitals
Earlier this month, SQM Research also downgraded its 2026 market forecast, which shows Australia’s two most prominent property markets, Sydney and Melbourne, are now officially going backwards.
The dramatic shift marks a significant reversal from the firm’s earlier, more optimistic predictions, painting a significantly bleaker picture for the eastern capitals due to a potent mix of persistent energy shocks, re-accelerating inflation, and the looming threat of further RBA interest rate hikes.
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Source: SQM Research
Just last December, SQM Research’s original base case scenario tipped national home values to climb a healthy 6 to 10 per cent in 2026, with several capital cities poised for double-digit gains.
Perth, Adelaide, and Brisbane were all forecast for robust growth, and even Sydney and Melbourne were expected to add 3 to 6 per cent and 4 to 7 per cent respectively.
However, under SQM’s updated base case, which factors in the cash rate potentially climbing to 4.35 per cent by mid-2026 and annual CPI inflation peaking at 4.4 per cent to 5.0 per cent, the outlook has drastically changed.
Sydney is now forecast to experience dwelling price losses of -6 per cent to -2 per cent, while Melbourne is projected to follow suit with anticipated falls of -4 per cent to -1 per cent.
Other major financial institutions are also forecasting a slowdown.
Expected property price drops by 2027 could spell good news for first-home buyers.
The Commonwealth Bank, in its latest economic update, suggested the Reserve Bank’s February and March rate hikes could subtract 1 percentage point from 2026 price growth forecasts and 2 percentage points from 2027.
PropTrack economists are also predicting a slowdown in property price growth due to rising interest rates.
Similarly, ANZ senior economist Madeline Dunk highlighted that while total listings are significantly below normal levels in smaller capital cities like Brisbane, Perth, Darwin, and Adelaide, “new listings are a little higher than usual in Melbourne and Sydney. We expect Melbourne and Sydney to underperform, particularly in the first half of the year, with prices growing less than 3 per cent in 2026.”
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