Housing downturn set to worsen as approvals collapse

The decline was no longer confined to higher-value markets, with 93 per cent of capital-city suburbs recording a fall over winter.

Sydney led the deterioration, with dwelling values falling 1.4 per cent over August and 4.7 per cent over the quarter.

Melbourne and Canberra each declined 1.1 per cent over the month, Brisbane fell 1 per cent, Adelaide and Perth both dropped 0.8 per cent, and Hobart eased 0.2 per cent.

Cotality head of research, Tim Lawless, said the breadth and pace of the Sydney decline raised the prospect of a significant downturn.

“I would argue that we are headed for the largest correction in Sydney for at least the last 40 years and that view is not breaking from the pack,” Lawless said.

“Annualising the quarterly rate we get around (an) 18.6 per cent fall and that would be the highest, beating the previous peak to trough fall of 13 per cent in 2017–19 which was during a credit crunch.”

CBA deepens housing fall forecast, tips ‘correction’

CBA senior economist Trent Saunders said the speed and breadth of the recent deterioration had prompted the bank to lower its forecasts for national dwelling prices.

“We have revised down our dwelling price forecasts. We now expect national dwelling prices to fall by around 9 per cent from peak to trough this cycle, while the 5-capital city average is expected to trough around 10 per cent below its most recent peak,” Saunders said.

“Sydney and Melbourne remain the weakest markets, with expected peak-to-trough declines of around 13 per cent and 12 per cent, respectively. But we now also expect a materially weaker outlook for the mid-sized capital cities, with peak-to-trough falls of around 8 per cent in Brisbane, Perth and Adelaide.”

Saunders said that CBA’s downgrade followed a sharper-than-anticipated weakening in housing-market conditions since its 3 June forecast update.

“The downgrade reflects several developments since our last forecast update on 3 June: (a) housing market momentum has been materially weaker than expected over the past three months, and we expect further declines in coming months; (b) price declines have broadened to the mid-sized capitals, where tight demand-supply balances have provided less support than we initially expected; and (c) our outlook for interest rates is now higher than it was in June,” he said.

“Even against that weaker starting point, the adjustment over the past three months has been larger and faster than we anticipated.”

CBA said it was now tipping a price “correction” and that it was also forecasting national dwelling prices to decline by 5 per cent through 2026. It also expects the five-capital-city average to fall 6 per cent.

Additionally, the bank now expects the downturn to run until April 2027, taking national values about 9 per cent below their early-2026 peak and values across the five largest capitals roughly 10 per cent below their respective peaks.

“Prices should then begin to recover, with national dwelling prices forecast to rise by 2 per cent over 2027,” Saunders said.

Downturn spreads beyond premium homes

Cotality’s Lawless said the market had moved from an initial adjustment concentrated among more expensive properties to a much broader decline.

“There is a multiplier effect from this too which is that people feel less wealthy and they stop spending,” he said.

“What started as a more concentrated easing across higher-value segments has now become a much more generalised softening, with the vast majority of capital city suburbs recording some level of decline.

“Even though values have already moved lower, the combination of sticky inflation, the prospect of higher rates and ongoing pressure on household budgets suggests demand is likely to remain subdued through spring.”

Shadow treasurer Tim Wilson attributed the decline and wider cost-of-living strain to the federal government’s economic settings.

“Because Albanese can’t kick his spending addiction they’ve had to increase taxes, and feed their active inflation agenda of stoking inflation, taxing inflation and spending inflation and the consequences are there for everyone to see: rising rents, falling real wages, falling house prices and small business sent to the wall,” Wilson said.

He said household pressures were being felt by existing owners and aspiring buyers alike.

“Australian families already struggling to pay their bills are now sitting at the kitchen table watching the value of their biggest asset, their family home, fall through the floor. At the same time, first home buyers are watching their savings get slugged with higher taxes, while they pay more for rent,” he said.

HSBC chief economist Paul Bloxham said a sustained market recovery was unlikely until buyers were confident that the prospect of rate hikes had ended.

“You’re going to need to see a circuit breaker before the housing market actually starts to turn, before buyers feel like they want to come back,” Bloxham said.

“That circuit breaker is normally the market starting to believe that interest rates are going to come down.”

Approvals retreat from recent strength

The August house price falls have coincided with a weaker monthly result for new housing approvals.

ABS data released on Tuesday (1 September) showed that total dwelling approvals fell 3.6 per cent in July, on a seasonally adjusted basis, to 17,687 dwellings.

Private-sector house approvals fell 4.2 per cent to 10,199 dwellings, while private dwellings excluding houses eased 0.4 per cent to 7,119.

Apartment approvals, measured in original terms, dropped 10.1 per cent to 4,344 dwellings.

“While private sector houses were down 4.2 per cent, this came off June which had the most approved since September 2021. In year-on-year terms, the result is 6 per cent higher than July 2025,” ABS head of construction statistics Daniel Rossi said.

Yet Rossi said the non-house segment had remained comparatively resilient despite a small monthly fall.

“Private other dwelling remain at elevated levels with over 7,000 dwellings approved in this series for the second month in a row,” he said.

South Australia recorded the largest fall in private-house approvals, down 10.7 per cent after a solid June result.

However, despite the softer momentum, approvals for private dwellings excluding houses were still 19.9 per cent above July last year.

Australia and New Zealand Banking Group (ANZ) said July marked “the largest monthly decline in the private house series since 2024”, while private units and town houses were “relatively steady, falling 0.4 per cent m/m”.

“Over the last six months there has been a modest upward trend in building approvals, however we do expect the series to moderate over the coming months as feasibility challenges and restrictive interest rates slow demand,” the bank said.

Westpac, meanwhile, said the results indicated rate pressures may be beginning to affect both major residential construction segments.

“July’s moderation across both detached dwellings and units suggests interest-rate effects may be beginning to emerge, although approvals remain elevated following the strength recorded earlier in the year,” Westpac said.

Property Council group executive policy and advocacy, Matthew Kandelaars, said confidence and investment certainty would be critical if Australia was to increase housing supply.

“Today’s approvals data reinforces what the market is already making crystal clear: confidence is weakening and the housing pipeline is under significant pressure,” Kandelaars said.

“When confidence falls, fewer projects stack up and fewer homes get built.

“Family-owned and mid-tier builders do much of the heavy lifting on housing supply. The proposed trust tax risks hitting exactly those businesses the government is relying on to help deliver 1.2 million homes.”

[Related: Mortgage growth significantly eases among top 10 ADIs]