Australia's housing market faces steep price drops amid rate hikes and tax changes

Australia’s property market is entering a pronounced correction, with AMP’s chief economist Shane Oliver forecasting an overall 7.8% reduction in average capital-city home prices by April next year. This decline follows three straight interest-rate increases by the Reserve Bank and a recent overhaul of taxes on property investors, which together have altered buyer psychology. Historical data shows seven downturns over the past forty years, the most severe recently being an 8.1% slide from April 2022 to January 2023.

NAB’s economists expect the steepest falls in Sydney and Melbourne—about 10%—while mid-size cities may only see 2%-4% drops, and some regional markets could post higher values by 2026. Prices are projected to level off in early 2027, then grow modestly as interest rates fall and sentiment improves. Analysts note that higher-than-pre-pandemic rates may make sustained price growth unlikely, prompting political debate over immigration, construction, and tax policy as tools to improve affordability.