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Forecast: House values to fall by over $100k
House prices could fall by more than $100,000 in major markets as affordability pressures reshape buyer behaviour, shifting demand towards units and further fragmenting the housing market.
According to Domain’s FY27 Housing Market Forecast, the property market is entering a “clear turning point”, with prices rather than momentum dictating where people buy.
Domain chief residential economist, Dr Nicola Powell, said the days of a single national housing trend were over, with affordability, borrowing capacities, cash rate, and sentiment driving vastly different outcomes across cities and property types.
“FY27 isn’t a uniform slowdown, it’s a more fragmented market, where some cities are still growing while others soften,” Powell said.
“Higher interest rates are weighing heavily on Sydney and Melbourne while more affordable segments and mid-tier cities are continuing to hold up.”
According to the report, beyond prices falling, transaction volumes are forecast to slow down in FY27.
Domain said that affordability pressures and elevated interest rates will keep buyers cautious, while many vendors are likely to delay selling rather than accept lower offers.
House prices to fall
Across the combined capitals, the report forecast a stabilising market, with house prices to experience a small downturn of up to $32,000 to a median of $1.26 million.
However, the national trend is set to significantly diverge at a state level, with the larger capital cities to see a significant downturn while smaller ones continue to grow at a softer rate.
According to the report, Sydney is expected to bear the brunt of the downturn in FY27, with house values tipped to fall by between $52,000 and $122,000.
Similarly, Melbourne is set to record significant declines of up to $84,000, which could see its median house price slip below the $1 million mark for the first time since 2021.
Canberra is projected to experience a more modest correction of up to $43,000.
In contrast, Brisbane, Adelaide, and Perth are forecast to remain the strongest-performing capital city markets in FY27, with house prices expected to rise by up to $87,000, $90,000, and $110,000, respectively.
Domain said that strong population growth and persistent housing shortages are expected to keep demand elevated in the smaller capital cities, despite price growth moderating.
Units to defy expectation
According to the report, units are expected to outperform houses across most capital cities in FY27 as affordability pressures reshape buyer behaviour and push more demand towards lower-priced properties.
“When borrowing power falls, and economic uncertainty rises, behaviour shifts – fast. Buyers trade location for value, houses for units, and timelines for patience.”
The gap between houses and units is expected to be most pronounced in Sydney, where affordability pressures, reduced borrowing power and stronger first home buyer demand are set to drive comparatively stronger unit market performance.
Canberra is the exception, with a larger supply of units expected to keep performance broadly in line with the detached housing market.
Across the combined capitals, unit prices are tipped to range from a $5,000 decline to a $24,000 rise.
The strongest growth is expected in Brisbane, Adelaide and Perth, where unit prices could increase by up to $74,000, $53,000, and $79,000, respectively.
Brisbane is also forecast to overtake Sydney as Australia’s most expensive unit market, with record highs possible under the report’s upper-growth scenario.
In Sydney, the unit market is forecast to range from a $25,000 decline to an $8,000 gain, while Melbourne is expected to record movements between a $18,000 fall and a $6,000 increase.
What could change the forecast?
The report identified several risks that could strengthen or weaken the housing forecast.
Domain said that the outlook could improve if interest rates fall sooner than expected, boosting borrowing capacity and encouraging more buyers back into the market.
Additionally, stronger first home buyer demand, persistent housing shortages, elevated population growth, and resilient investor activity could also support higher-than-forecast price growth.
On the other hand, the report said that the outlook could weaken if interest rates remain higher for longer, investor demand falls more sharply than expected, or the labour market deteriorates, further eroding buyer confidence and borrowing capacity.
Faster housing supply, weaker consumer sentiment and prolonged cost-of-living pressures could also place additional downward pressure on prices.
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