Australian house prices could fall 15% as downturn deepens
Australia’s housing downturn could deepen significantly over the coming year, with Morgan Stanley analysts forecasting national home prices may fall by as much as 15 per cent by the end of 2027 if borrowing conditions tighten further.
The investment bank had previously forecast a decline of between 5 and 10 per cent following federal budget changes to the taxation of property investments in May. Its analysts now say conditions have deteriorated, with national prices already 5.2 per cent below their March peak.
Morgan Stanley Australia economist Chris Read and colleagues said higher interest rates remained the key factor determining how severe the downturn could become. If rates remain unchanged from current levels, the analysts expect home prices to record a low double-digit decline. Further tightening could push the fall towards the upper end of their forecast range.
The revised outlook comes as Reserve Bank deputy governor Andrew Hauser has flagged the possibility of a fifth interest rate increase this year when the RBA’s monetary policy board meets on November 2–3.
Capital city prices retreat
Separate data from Domain showed house prices declined across every Australian capital city during the September quarter for the first time in 15 years.
Perth recorded the largest quarterly house-price decline at 7.4 per cent. Brisbane fell 5.4 per cent, Sydney 4.7 per cent and Melbourne 3.3 per cent. Adelaide and Hobart each declined 3 per cent, while Canberra and Darwin both fell 2.6 per cent.
Unit prices also declined in every capital except Darwin, where they increased 2.2 per cent. Across the combined capitals, house prices were down 4.7 per cent for the quarter and unit prices fell 3.5 per cent.
Domain chief residential economist Nicola Powell said the combined-capital decline from peak to trough had reached 8.5 per cent, compared with 6.2 per cent previously.
The data suggests higher construction costs and tight rental conditions have not been enough to prevent prices from weakening as buyers anticipate further falls and delay purchasing decisions.
Market activity points to continued weakness
Slower transaction activity is also evident in auction results. The combined capital city preliminary clearance rate rose to 51.2 per cent last week from 48.8 per cent a week earlier, but Morgan Stanley identified declining volumes as the main factor behind the movement.
Buyer interest in new housing has also weakened. Stockland reported that new buyer inquiries during the September quarter had fallen to their lowest level since at least September 2020.
Morgan Stanley said five conditions would typically indicate that the housing market was approaching a trough: markets pricing interest rate cuts, easing government policy, sales rising relative to listings, improving auction clearance rates and home ownership becoming cheaper relative to renting.
According to the analysts, none of those conditions has been triggered, and they do not expect them to turn before mid-2027. On that assessment, a housing-market trough would be more likely during the second half of 2027.
The broader slowdown is occurring against a sizeable residential market. Australian Bureau of Statistics figures cited in the report put the value of the housing market at $12.7 trillion in the June quarter after it lost $34.1 billion in value during the period.
For property investors, the outlook places borrowing costs, buyer demand and the direction of interest rates at the centre of market conditions over the coming year.
SOURCE ATTRIBUTION:
Based on reporting by The Australian Financial Review, published 22 October 2026. Source: www.afr.com
