The housing crash talk doing the rounds may be overblown – but that doesn’t mean every pocket of the market is safe.
Ray White Group’s Chief Economist, Nerida Conisbee, says the real risk isn’t a broad national price crash. It’s a market that becomes sharply uneven, with cheaper suburbs that benefited most from first home buyer policy support now facing the greatest downside.
At the centre of the analysis is the federal government’s 5 per cent deposit scheme, which has operated in various forms since 2020 but was significantly expanded on 1 October 2025. Income caps were removed, property price caps were lifted, and the number of available places became uncapped.
Because the scheme applies only up to set property price thresholds, the additional demand has been concentrated in lower-priced markets, exactly where first home buyers could afford to purchase.
The data backs this up; ABS figures show owner-occupier first home buyer lending rose 7.2 per cent nationally in the December and March quarters compared with the same period a year earlier. In NSW, the increase was 15.8 per cent.
That demand has translated directly into price growth. Since the scheme expanded, suburbs sitting below the first home buyer price thresholds have outperformed those above the thresholds in every state.
In NSW, suburbs under the threshold rose 2.0 per cent while those above fell 1.7 per cent. In Victoria, the gap was 6.0 per cent versus 2.8 per cent. In Queensland, it was wider again – 7.9 per cent compared with 4.1 per cent.
Ms Conisbee said the problem is that the next policy shift works in the opposite direction. The federal budget changes are expected to weaken investor demand, and investors tend to buy in the same lower-priced segments – apartments, townhouses, and cheaper houses – where first home buyers are active.
“The government helped push first home buyers into the cheaper end of the market. Now, through the budget changes, it will push investors out of that same part of the market.”
She noted this is consistent with historical patterns. The strongest periods of first home buyer activity have aligned with highly supportive policy settings, including the GFC-era stimulus and the pandemic period when ultra-low interest rates and HomeBuilder brought buyers forward.
For agents working in those lower-priced corridors, the implication is worth watching closely.
First home buyers who entered with just a 5 per cent deposit have a slim equity buffer. Even modest price falls could push some into negative equity – not necessarily a crisis if they can keep paying the mortgage and don’t need to sell, but a real constraint on their options.
Meanwhile, higher-priced markets that are less directly exposed to both the deposit scheme and the investor policy changes are likely to hold up better, and may begin outperforming.
Ms Conisbee cautioned that the current softening in clearance rates is being driven by several forces at once – interest rate settings, federal budget uncertainty, weaker sentiment, and global factors including the Middle East conflict – making the downturn difficult to read.
A national crash still looks unlikely, she said, given Australia’s housing shortage, strong population growth, and constrained construction pipeline.
But she warned the downturn is likely to be concentrated in the parts of the market where demand was most policy-supported and where buyers have the smallest equity buffers.