Australia’s housing downturn is underway, but according to Ray White Group chief economist Nerida Conisbee, national house prices are unlikely to fall far during this cycle.
The latest Cotality Home Value Index shows national house values fell 0.8 per cent in July and 2.0 per cent over the three months to July, but despite the slide, they remain 5.7 per cent higher than a year ago.
The downturn isn’t hitting every market the same way: Sydney and Melbourne house prices are already down 3.4 per cent over the past year, and Canberra is down 0.5 per cent, while Perth is still up 10.2 per cent, Darwin 13.1 per cent, Adelaide 6.4 per cent and Brisbane 6.3 per cent.
Since May, national house prices have fallen by an average of 0.68 per cent a month.
Nerida modelled what would happen if that pace of decline continued for three more months before prices began recovering at the average rate seen after previous downturns: the annual result would briefly turn negative, bottoming at around 0.8 per cent below the previous year.
Six more months of decline would take the annual fall to around 4.9 per cent.
Only if prices kept falling at the recent rate for another nine months – until April 2027 – would the annual decline reach 7.9 per cent, comparable to the Global Financial Crisis.
“This is not a forecast. It shows how prolonged the current downturn would need to become to produce a fall of that scale. There are several reasons why I do not expect that to happen,” Nerida said.
She described the market as currently in the first of three phases, with uncertainty about interest rates and the Federal Budget keeping buyers on the sidelines.
Among the data points Nerida pointed to, Ray White’s open-home attendance figures have fallen to 2.2 people per property, while Cotality’s modelled sales volumes across the combined capital cities are almost 30 per cent lower than a year ago. Together, she said, the figures point to a market where activity has slowed sharply, rather than one experiencing widespread distressed selling.
The second phase, she said, will begin once another interest-rate increase becomes very unlikely, with greater certainty around the peak enough to draw some buyers back even without an immediate rate cut.
The third phase starts when the RBA begins cutting rates, though Nerida said a recovery is likely to have already begun in some markets by then.
The Budget’s removal of negative gearing on established homes caused investor lending to fall immediately, Nerida said, with investors now needing higher rental yields without the tax benefit – an adjustment she said is already occurring in Melbourne and Sydney through a combination of falling prices and rising rents.
“As yields improve, established property will gradually begin to look more attractive again,” she said.
Replacement costs are also a factor. The cost of building a new house is now 51 per cent higher than at the end of 2019, and rose a further 5.9 per cent over the past year.
Private new-house completions fell 0.6 per cent in the March quarter, with commencements down 3.5 per cent.
Around 879,000 dwellings were completed over the five years to March 2026 – roughly 176,000 a year – against the Government’s target of 1.2 million homes over five years, which requires 240,000 completions annually.
The National Housing Supply and Affordability Council expects around 980,000 homes to be delivered over the Accord period, a shortfall of approximately 220,000.
Nerida also highlighted the GFC downturn occurred during a global credit shock and severe financial system stress, while the current market has exceptionally low transaction volumes but no equivalent shock forcing large numbers of owners to sell.
“Greater interest-rate certainty, improving investor returns, rising replacement costs and continued undersupply are all likely to intervene before that occurs,” she said.
For agents talking to vendors and buyers right now, the takeaway is about timing rather than panic. Vendors weighing up whether to sell can be reassured that this downturn looks nothing like the GFC, and that phases two and three – greater rate certainty, then actual cuts – are likely to bring buyers back before prices fall much further.
Buyers sitting on the sidelines should understand that waiting for a dramatic drop may mean missing the early stages of recovery, particularly as investor yields improve and replacement costs keep climbing.