Australia’s home-price slump deepens, poised to stretch into 2027

SYDNEY, 1 OCTOBER 2026 —

Australia’s Housing Market Slump Deepens as Price Falls Extend Into 2027, Citing Weak Demand and Rising Costs

Sydney, the country’s largest city, has seen its median home price plunge nearly 9% from its February peak, now hovering around A$1.2 million (US$840,000), according to Cotality’s Home Value Index, while Brisbane recorded the steepest monthly decline among major cities at 1.5%—outpacing Sydney’s 1.4% drop.

The slump underscores a broader economic strain, with nearly all capital city suburbs experiencing value declines over the past three months, signaling a sustained negative cycle. The Reserve Bank of Australia’s latest rate hike—raising its benchmark by 1 percentage point in 2026 to a 15-year high—has further squeezed borrowers already grappling with elevated living expenses and stagnant real incomes.

Analysts warn that without a significant shift in buyer confidence or financial conditions, the correction could drag on well into 2027, though a severe crash remains unlikely due to constrained housing supply and a resilient labor market.

---

Sydney’s median home price now stands at approximately A$1.2 million, down from its February peak, reflecting the sharpest contraction in Australia’s most expensive market. Brisbane’s September decline of 1.5%—the largest among capital cities—followed Sydney’s 1.4% drop, while combined capital city prices fell 1.2% month-over-month.

The downturn stems from a combination of factors: the Reserve Bank’s aggressive monetary tightening, which has pushed borrowing costs to their highest levels in a decade, and the May 2026 federal budget’s tax changes that reduced incentives for property investors.

Tim Lawless, research director at Cotality, noted that "97% of capital city suburbs were down in value over the three months to the end of September," highlighting the breadth of the decline. While increased housing stock has given buyers more options, many prospective purchasers lack the financial capacity or confidence to enter the market.

"The lift in available stock is improving choice for buyers, but ironically, many prospective buyers don’t have the confidence or financial capacity to buy at the moment," Lawless said.

The slowdown is also evident in sales velocity, with capital city homes now taking a median of 39 days to sell—up from just 23 days a year ago. This prolonged selling period has led to an accumulation of advertised supply, further pressuring prices.

Lawless added that borrowers face "not only higher mortgage costs, but also an extended period of elevated living expenses and negative real income growth," which has narrowed the pool of qualified buyers and reduced their purchasing power.

---

The outlook remains cautious, with Cotality projecting that housing values will continue to decline into 2027, driven by sustained high interest rates. However, the firm expects the fall to be tempered by low housing supply and a resilient labor market, which should prevent a sharp collapse.

"Together, these pressures are narrowing the pool of buyers able to qualify for a mortgage and reducing the amount they can afford to pay," Lawless said, emphasizing the dual burden of affordability and accessibility.

A slight improvement has emerged in the rental market, with the national vacancy rate rising to 2% in September—the highest level since January 2025. This suggests a modest easing of rental pressure, though it remains far below the peaks seen during previous market cycles.

The divergence between the slumping sales market and stabilizing rental sector reflects shifting dynamics in Australia’s property landscape, where investors and first-home buyers alike are reassessing their strategies in an environment of elevated costs and uncertainty.

---

For Malaysia and regional observers, Australia’s housing market correction offers a cautionary tale amid similar macroeconomic pressures. While Malaysia’s property sector has faced its own challenges—including cooling measures and rising financing costs—the depth of Australia’s downturn, particularly in Sydney and Brisbane, underscores the vulnerability of high-value markets to policy shifts and monetary tightening.

The Reserve Bank’s aggressive stance, coupled with fiscal adjustments, has created a perfect storm for homeowners and investors, with ripple effects potentially extending to regional financial markets.

The prolonged selling period and accumulated supply in Australia’s capital cities may also serve as a warning for Southeast Asian markets where housing bubbles have been a persistent concern. In Malaysia, for instance, the government has implemented measures such as the Real Property Gains Tax (RPGT) and stricter loan-to-value ratios to curb speculative activity, but the risk of a prolonged correction remains if demand weakens further.

Analysts in the region will be watching closely as Australia’s central bank continues its rate-hiking cycle, which could further dampen consumer spending and investment. The potential for a drawn-out market adjustment—rather than a sudden crash—may also influence policy responses in other economies where property plays a dominant role in household wealth and economic stability.

---

The immediate impact of Australia’s housing slump is being felt most acutely by homeowners and investors, with equity erosion and reduced borrowing capacity reshaping financial strategies. For first-home buyers, the prolonged downturn may present opportunities, though affordability constraints remain a significant barrier. Meanwhile, rental market improvements offer some relief to tenants, though the broader economic slowdown could limit wage growth and further strain household budgets.

As Australia’s property market navigates this extended correction, the focus will shift to whether the Reserve Bank’s tightening cycle will ease in 2027, potentially stabilizing prices. Without a clear pivot in monetary policy, however, the outlook for home values remains subdued, with analysts cautioning that the current cycle of decline is unlikely to reverse quickly.

The story ends on the last substantive fact from the source: Cotality’s projection that housing values will continue falling into 2027, driven by sustained high interest rates and weak buyer demand.

Related: Tim Lawless