Australia’s property market could be heading for a significant correction as a surge in housing supply combines with stubbornly high interest rates, new analysis reveals.
Fresh data from HomeLoanRates.com.au, underpinned by research from Primara Research, shows an extraordinary 54,000 new homes were added to Australia’s residential dwelling stock in the December 2025 quarter, which is the biggest quarterly increase since at least 2016 and around 25 per cent above the long‑term quarterly average.
According to the modelling, this influx won’t immediately depress prices.
Instead, Primara’s analysis suggests there’s a roughly seven‑quarter lag between increased housing supply and its full impact on sale prices, meaning the effects of the December 2025 supply boost are likely to hit the market in the September quarter of 2027.
Without the extra supply, the research, which was published by realestate.com.au estimates national dwelling values might have climbed by about 1.15 per cent by late 2027.
Instead, the new housing stock is expected to tip the balance towards a 0.32 per cent decline – a swing of nearly 1.5 percentage points attributable to a single above‑average supply quarter.
East Coast markets most vulnerable
The national figures mask stark regional differences.
New South Wales and Victoria, which together represent more than half of Australia’s housing stock, are forecast to be the main drivers of the downturn, as both states are highly sensitive to changes in supply and borrowing costs.
- NSW is projected to record only modest growth of about 2.4 per cent over the 18 months to late 2027, with a quarterly drop of around 1.49 per cent as early as June 2027.
- Victoria is forecast to see a 1.44 per cent price fall in the September 2027 quarter, following several quarters of weakness through 2026, resulting in an overall 1.5 per cent decline and a median dwelling price near $919,400.
- Tasmania and the ACT are also expected to see mild price reductions over the seven‑quarter period.
Growth continues in less supply‑strained states
By contrast, states with lower exposure to the supply surge are projected to keep growing:
- Queensland: ~13.1 per cent increase, median ~$1.206 million.
- South Australia: ~13.8 per cent rise, median ~$1.067 million.
- Western Australia: leading with a predicted ~16.3 per cent gain, median ~$1.179 million.
Primara Research Director Peter Drennan described the emerging pattern as “a tale of two housing markets” — with NSW and Victoria absorbing the brunt of both the extended period of higher borrowing costs and the supply surge, while capital flows shift into markets such as Queensland, WA and South Australia that are less oversupplied and more resilient.
While a national price downturn has been flagged, the regional divergence in forecasts underscores that local conditions will be a key driver of performance over the medium term.
Markets with constrained supply and strong migration‑driven demand are still likely to outperform, even as broader metrics soften.
