How far will home prices fall from here?

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How far do prices fall from here?

Sydney is seven months into a correction. The four before it tell us roughly how deep this one goes — and, more usefully, how long the wait is likely to be.

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Alan Weiss  ·  Weiss Real Estate

The question I am asked most often at the moment is not whether the Sydney market is falling. Everybody can see that it is. The question is how far, and for how long.

It deserves a better answer than the two usually given — that the market always comes back, or that this time it is different. So I have set out the four previous corrections of consequence and laid each one out the same way: what caused it, how far it fell, and how long it took to get back.

That last figure is the one almost nobody quotes, and it is the one that should decide what you do.

Where the market sits today

I have read most of what has been published on this market over the past three months, and the striking thing is how far apart the two halves of the commentary have moved. The people standing in front of buyers on a Saturday are describing something close to a stoppage. The people building the models are describing an orderly correction in single digits. They are looking at the same city.

Take the auction floor first. Tom Panos, who has been calling Sydney auctions for thirty years, described a Saturday in July on which he took six properties to auction and did not register a single bidder. He called it the worst day of his career, and put the level of activity at nothing he has seen since 1991 — he has worked through the recession, the global financial crisis and the pandemic, and says this one feels different. He has since described the market as frozen, put sales volumes down by something close to 40 per cent, and argued that what has changed is confidence rather than interest rates alone.

I would treat that carefully in both directions. One Saturday is not a market, and auction commentary carries a professional incentive toward drama that a price index does not. But what he is describing is a volume signal rather than a price signal, and as the sections below show, turnover always moves first and always moves further than price. When nobody registers, the transaction stops being a contest and becomes a negotiation. That is a real change in how a sale gets done, and it will not show up in a median for months.

Where I part company with him is on the word appetite. He has said the appetite for property is gone. I do not think it has gone anywhere. In Sydney the upper quartile has now fallen for five consecutive months while the cheaper end has kept rising, which is not what an absence of desire looks like. It is what an absence of capacity looks like, and capacity bites hardest at the top.

Buyers have not disappeared. Their borrowing capacity has.

Now take the modellers, who have moved almost as fast as the market. In November, SQM Research published a base case of 6 to 10 per cent national growth for 2026, with Sydney at the modest end of it. By March, after the conflict in the Middle East and the rate rises that followed, Louis Christopher had revised Sydney to a fall of up to 6 per cent, with a scenario reaching 9 per cent if the hikes continued — and he made the point that Sydney’s weighting toward financial services leaves it more exposed than most in conditions of this kind.

ANZ Research now expects capital city values to fall 4.3 per cent this year and a further 3.4 per cent next, which would make a peak-to-trough decline of 10.6 per cent. Domain expects a gradual recovery from around the middle of 2027, timed to the first rate cut, and all four major banks now expect that cut to be the next move, with forecasts ranging from May to September 2027. Cotality’s Tim Lawless has added the useful observation that the largest national peak-to-trough decline on record is 8.2 per cent, in 2017 to 2019, and that what distinguishes this episode is not any single cause but the number of them arriving at once.

The direction of those revisions is the part worth holding onto. Eight months ago the same analysts were forecasting growth. They did not change their minds because they were careless. They changed because a shipping lane closed and the Reserve Bank moved three times in four months. Which is the argument for looking at how these cycles have actually behaved rather than at anybody’s number for next year, mine included. Sydney sits around 5.3 per cent below its January peak as I write. The useful question is not where that lands next quarter. It is what the four corrections before this one were doing seven months in.

The four corrections before this one

Each section below covers one correction the same way: what happened, then the five things that decide every property cycle — interest rates and borrowing capacity, jobs and incomes, migration, supply and demand, and whatever local or global event set it off. Each also carries the cash rate, the auction clearance rate and sales volumes at three moments: the peak, the bottom, and the point the market turned. The charts share a horizontal scale, so the width of a line is the length of a cycle and can be read straight across from one section to the next. The vertical scale is not shared — a 144 per cent rise and a 21 per cent rise are drawn to the same height, with the magnitude printed at each peak, because sharing it would flatten the recent cycles into flat lines. Sources are set out at the end.

1989 to 1991 · the recession

The 1987 stock market crash sent money looking for somewhere safer, and it found property. National house prices rose 56 per cent in the two years to 1989 on ABS figures, with Sydney running harder than that. REIA had Sydney’s median house at $214,500 in December 1988, nearly double Melbourne’s $122,000.

Then it stopped. Sydney peaked in 1989 and fell around 24 per cent over the following two years, the deepest decline in its modern history. What separates this one from everything that came after is that it was not a market event. It was an economic one. Mortgage rates reached 17 per cent, unemployment climbed to 10.8 per cent and kept climbing to 11.1 per cent by late 1992 — still the highest in the series. Owners were not deciding whether to sell; they were selling because the alternative was foreclosure, and forced sellers set the price for everybody else.

Migration went the same way. Net overseas migration peaked at 157,436 in 1988–89 and then collapsed to 86,432 by 1990–91 and 30,042 by 1992–93. Every source of demand failed at once. Values sat flat through the first half of the 1990s and did not make a new high until around 1995 — a two-year boom and a six-year round trip, and with inflation running as it was, far worse in real terms than those nominal figures suggest.

2004 to 2006 · the long flat

Sydney began moving in early 1996 and did not stop for eight years. The median house price was $214,719 in June 1996 and peaked at $523,000 in March 2004 — the most prolonged boom in the modern record, driven by the collapse in interest rates from their 1990 peak, the halving of capital gains tax in 1999, and the arrival of the leveraged retail investor.

What followed was not dramatic. ABS figures show Sydney established house prices fell 0.9 per cent across 2004–05, and the total nominal fall was single-digit. But the market did not recover that March 2004 median until October 2009. The auction market tells the story better than the price index does: Sydney clearance rates bottomed at 33 per cent in 2004, a fifteen-year low, were still hovering near 40 per cent in December 2005, and had only recovered to 62.8 per cent by February 2006.

This is the cycle that most rewards study, because the conditions were good and it still went nowhere. Unemployment was falling. Migration was rising — from 99,966 in 2003–04 to 123,763 and then 146,753 by 2005–06. None of it mattered. Buyers had simply run out of borrowing capacity after eight years, and someone who bought at the top in 2004 and needed to sell in 2008 was still underwater.

2017 to 2019 · the credit squeeze

The run that began in mid-2012 lifted Sydney values close to 80 per cent over five years. It ended because of credit, not rates — the cash rate sat flat at 1.5 per cent throughout the downturn and then fell. APRA capped investor lending growth, then capped interest-only lending at 30 per cent of new loans in March 2017, the Banking Royal Commission arrived, and lenders suddenly took a close interest in what borrowers actually spent each month.

Everything else was working. Unemployment was stable. Migration was near record levels, at 263,351 in 2016–17 and still 241,338 by 2018–19. Sydney fell 14.9 per cent anyway, over 22 months. That is the clearest evidence in this article that population growth cannot hold up a market when borrowing capacity is cut.

Policy then reversed sharply in the middle of 2019: two RBA cuts in June and July, APRA scrapping the 7 per cent serviceability floor it had imposed on lenders, and a federal election that removed the prospect of negative gearing and capital gains tax reform. The market turned within a quarter. COVID then interrupted the recovery, and Sydney took 44 months from its July 2017 peak to reach a new record high.

2022 to 2023 · the rate shock

The shortest and sharpest of the four. Sydney rose 27.7 per cent in sixteen months, then the RBA moved the cash rate 300 basis points in eight months and Sydney fell 13.8 per cent over the following twelve — the second-fastest fall in the city’s recorded history, behind only the 17.4 per cent drop of 1982–83.

It should have been worse than it was. What stopped it was population. Net overseas migration had gone from a net loss of 85,000 in 2020–21 to 171,000, then to an all-time record of 538,000 in 2022–23. Unemployment hit 3.5 per cent in September 2022, the lowest in almost fifty years, so nobody was forced to sell into it.

Even so, the recovery is not as quick as it is remembered. Sydney bottomed in January 2023 and was up 6.7 per cent within five months, but it did not equal its January 2022 record high until May 2024. That is 28 months from peak to peak — with a record migration intake and the tightest labour market in half a century behind it.

2026 · where we are now

Sydney started moving again in January 2023 and peaked three years later, in January 2026, up around 21 per cent. It was not a clean three years. Values stalled through late 2024, falling more than 2 per cent between September 2024 and January 2025, and Sydney was still 1.1 per cent below its September 2024 high as late as April 2025. Rate cuts from February 2025 restarted it and 2025 delivered around 5.7 per cent. No other cycle here faltered before its peak.

The turn is worth tracing properly, because it did not begin in Australia. Inflation was already sticky through the second half of 2025 and the RBA broke a two-year holding pattern with a rise in February. Then conflict in the Middle East closed the Strait of Hormuz from late February. Oil rose 66 per cent and liquefied natural gas 44 per cent, removing around a fifth of global LNG supply. Australian fuel prices jumped 32.8 per cent in the month of March alone, the largest move since that series began, and headline inflation reached 4.6 per cent. Two more rate rises followed, in March and May. Sydney’s correction was set in motion by a shipping lane.

The detail underneath is worth setting out, because it is not a market falling evenly. Cotality’s July index had Sydney dwelling values down 1.4 per cent for the month, 4.0 per cent for the quarter and 2.0 per cent over the year, with the median at $1,244,617 — roughly $17,700 off the typical home in July alone. Houses are falling faster than units. Nationally, upper-quartile values fell 3.2 per cent over the three months to July while lower-quartile values rose 0.3 per cent. Total listings are up 14.3 per cent on a year ago while new listings are down 14.1 per cent, so the growing pool of stock is unsold homes rather than fresh supply, and vendor discounting has widened to 4.2 per cent from 3.3 per cent.

The two supports that ended the last correction are both weakening. Net overseas migration has fallen for two consecutive years, from the record 538,000 to 306,000 in 2024–25. Unemployment has risen from 4.1 per cent in February to 4.5 per cent in July, its highest since November 2021, with the RBA forecasting 4.7 per cent.

What the five have in common

One of these is not like the others. In 1989 people lost their jobs: unemployment reached 10.8 per cent and kept going to 11.1 per cent, and owners sold because they had no choice. Call that a distress correction. In 2004, 2017 and 2022 nobody was forced out; what changed was how much a buyer could borrow. Call those capacity corrections. Today’s is a capacity correction too, and that distinction governs everything that follows.

Within that group, two things hold. Depth tracks the cause: the credit squeeze and the rate shock both landed near 14 per cent, and the exhaustion of 2004 was shallower still. None came close to the 24 per cent of the distress cycle. Duration tracks the boom that preceded it: 93 months of gains took 67 months to work off, 61 months took 44, and 16 months took 28. Note that last pair. Sydney bottomed in January 2023 and was rising within months, which is how most people remember it — but values did not get back to the January 2022 peak until May 2024. In the four corrections since 1989, the fastest round trip from peak to peak took 28 months.

The depth of a correction tells you what caused it. The length of the boom before it tells you how long you will be waiting.

Read the five drivers across all five cycles and one of them behaves quite differently from how it is usually described. Migration has never once rescued a falling Sydney market. It rose right through the 2004 downturn, from 99,966 to 146,753, and prices went nowhere for five years. It sat near record levels through the credit squeeze and prices fell 14.9 per cent anyway. The single time it coincided with a recovery was 2023, when it hit an all-time record of 538,000 — and even with that behind it, the round trip still took 28 months. Population growth is not a floor under prices. It is a floor under rents.

Auction clearance rates turn first, but they do not always mean anything. They are the fastest indicator we have — Sydney fell to 32 to 35 per cent in November 2018 and 38.4 per cent in June 2022, in each case months before the price index found its floor. But they can also lift and lead nowhere: clearance recovered from 33 per cent in 2004 to 62.8 per cent by February 2006, and the median still did not regain its March 2004 level until October 2009. A clearance rate tells you whether buyers and sellers have found each other again at the current price. It does not tell you the price is about to rise.

The turning points also settle a question I am asked constantly, which is whether the market needs a rate cut to recover. It does not. In February 2023 Sydney’s preliminary clearance rate hit 78 per cent with the cash rate at 3.35 per cent and still rising. In February 2006 clearance passed 62 per cent with no cut at all. What turns these markets is the removal of a constraint, and the cash rate is only one of the things that can be doing the constraining.

Borrowing capacity is the driver that decides it. Every one of these corrections began when capacity was cut and ended when it was restored — and not always through the cash rate. In 2017 the rate never moved; APRA did the work. In 2019 the recovery came from rate cuts and APRA loosening and an election result together. In 2023 it came from migration plus the end of the hiking cycle. In 2004 nothing was lifted at all, and so nothing happened for five years. These markets turn when a constraint is removed, not when prices reach a level that looks fair.

One last thing. Turnover moves before price does, and it falls a great deal further: through the credit squeeze Sydney values fell 14.9 per cent while quarterly sales collapsed from more than 35,000 to about 14,500. Sydney is currently running about 7 per cent below its five-year sales average. On that measure this correction is in its early innings, not its late ones.

Why this one may run longer

Three constraints are pressing at the same time, which is unusual, and it is the reason I expect this to take longer than the arithmetic on its own suggests.

Rates. The Board has held at 4.35 per cent through June, July and August, and Governor Bullock’s language remains firm — inflation is still too high, and further increases are explicitly on the table. Bank forecasts for the first cut start around mid-2027 and differ considerably.

APRA, which is being underweighted. Since February, banks have been limited to writing 20 per cent of new mortgages at a debt-to-income ratio of six times or more — the first hard debt-to-income cap in Australian history. In its May review APRA confirmed the cap stays, along with the 3 percentage point serviceability buffer. A borrower on a 6 per cent loan is still assessed at close to 9 per cent, and now a quota sits above that. This matters because a rate cut reverses the first constraint but not the second. The 2019 recovery worked precisely because APRA loosened at the same moment the RBA cut, and nothing in APRA’s current language suggests it intends to do that again soon.

Tax. The Budget limits negative gearing on established residential property acquired after 7.30pm on 12 May 2026, and from 1 July 2027 replaces the 50 per cent capital gains tax discount with cost base indexation plus a 30 per cent minimum rate. CBA has estimated the package leaves prices around 3 per cent lower than they otherwise would have been.

And a fourth pressure that was not there last time: both of the supports that ended the 2022 correction are weakening. Migration has fallen two years running, from the record 538,000 to 306,000, and unemployment has gone from 4.1 per cent in February to 4.5 per cent in July. The ground is still firm — vacancy is around 1.6 per cent, rents are up 5.5 per cent, and nobody is being forced out. But it is firmer behind us than in front of us.

The tax change most people have misread

I have had several conversations this year with owners who believe they must sell before 1 July 2027 to preserve the 50 per cent capital gains tax discount. That is not how the transition has been drafted. For assets held before that date, gains accrued up to 1 July 2027 remain under the existing rules regardless of when the property is eventually sold, and only gains accruing after it fall under the new regime. There is no cliff edge, and no reason to bring a sale forward purely for tax.

I raise it because a widely held misunderstanding can create a real supply event. If enough owners believe they must be out by June 2027, listings will spike into a soft market and prices will fall further than the fundamentals warrant. If you are considering selling for tax reasons, get the advice before you get the appraisal. I am not a tax adviser and this is a question for yours.

What I think happens from here

What follows is my own assessment, not a forecast from any of the institutions named above.

On depth, I expect the peak-to-trough fall to land between 8 and 12 per cent, with about half of that already behind us. That sits below the credit squeeze and the rate shock, and it should — there is a smaller boom to unwind. I expect the upper quartile, which is most of the Eastern Suburbs, to run into the low teens, and prestige stock above roughly $8 million to be more variable still, because at that level two or three transactions move a median.

On duration, a 36-month run-up sits between the rate shock and the credit squeeze, which on the pattern above implies roughly three years from peak to new high: a trough somewhere in the second half of 2027 and a return to the January 2026 level around late 2028. The pace supports that. At 0.76 per cent a month this fall is behaving like the slow credit grind of 2017, not the 1.15 per cent rate shock of 2022 — which is what you would expect if the APRA cap, rather than the cash rate, is the binding constraint.

On the evidence of the last two cycles I would expect clearance rates to lift before the price index does, probably by two or three months, and I would not read much into the first sign of it. The 2006 experience is the caution: the auction market can find a working price and still sit at that price for years.

The thing that would make all of this too optimistic is unemployment, and it has already begun to move — 4.1 per cent in February, 4.5 per cent in July, with the RBA forecasting 4.7 per cent. Everything above assumes owners stay constrained rather than compelled. A drift toward 5 per cent is uncomfortable but survivable. Something materially worse changes the precedent from 2017 to 1989, and the arithmetic gets considerably worse in both depth and duration. I do not expect it, and 4.7 per cent would still be low by any historical standard. But it is the one number I would watch above the cash rate, and it is not the number most people are watching.

For an owner, all of this has one practical consequence. In a fast correction, waiting is usually right, because the recovery arrives before your circumstances change. In a slow one, waiting costs you two or three years of your life for a number you were going to get anyway. The right question is not whether Sydney prices will be higher in 2032. They almost certainly will be. It is whether the next three years are years you can afford to spend waiting — and what the property you intend to buy next is doing in the meantime, because in a market where the top quartile is falling faster than the bottom, the gap between what you sell and what you buy has been closing in your favour.

That is the calculation I would be running with anyone thinking about the next eighteen months. It is rarely the one people arrive with.