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Sydney prices to drop further $30k in 2026 as buyers remain squeezed
A further decline in Sydney and Melbourne home prices is unlikely to give buyers an advantage, with borrowing power shrinking faster than property values following three interest rate rises.
While Melbourne and Sydney will continue to record drops in median house prices for the rest of the year, new data showed that home buyers’ borrowing capacity has been falling faster.
According to an analysis of Westpac’s latest data, the median Sydney house price could fall a further $29,601 through to the end of this year, after already sliding by $18,977.
Meanwhile, Melbourne’s median house price could drop by a further $18,128, between 1 May and 31 December.
According to the forecasts, changes to negative gearing and capital gains tax (CGT) will push Sydney and Melbourne house prices further into decline.
Meanwhile, Perth and Brisbane will continue to charge ahead, under Westpac’s forecast, with median house prices tipped to rise by around $39,000 and $32,000, respectively.
Canstar.com.au data insights director, Sally Tindall, said despite the drop, prices were unlikely to fall as much as Melbourne and Sydney first home buyers were hoping.
“With Sydney’s median house price still hovering at $1.6 million, a further $30,000 drop is still closer to a rounding error than a savings,” she said.
However, despite the declining prices, the data showed home-buying budgets have been shrinking even further.
It said a single person earning the average full-time wage, as recorded by the Australian Bureau of Statistics (ABS), has already seen their maximum borrowing capacity drop by $35,800 as a result of the rate hikes.
Meanwhile, a couple earning a full-time wage has seen their maximum budget drop by $71,600.
Canstar said if there were two more 0.25 cash rate hikes this year, an individual would see their borrowing capacity drop by around $57,600 in total, with their budget decreasing by 10 per cent since the start of the year.
Tindall said that three rate hikes in quick succession had a serious impact on borrowing capacity, particularly in Sydney, where buyers need to borrow significantly more to get into the property market.
“Modest property price declines don’t necessarily improve affordability when higher mortgage rates are stripping tens of thousands of dollars from buyers’ budgets,” she said.
Recently, the Australian Prudential Regulation Authority (APRA) confirmed the current three per cent serviceability buffer would remain despite a high interest rate environment.
Tindall said the serviceability buffer had become an increasingly tough hurdle in a higher-rate environment, with borrowers now being assessed at rates pushing well above nine per cent.
Lifting the buffer would more than likely lift property prices, which is the last thing most would-be first home buyers want,” she concluded.
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