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Domain predicts 7-8% Sydney, Melbourne house price drop.

7/2/2026

Summary

Domain Predicts Downturn

Domain forecasts that during ninth downturn in 30 years Sydney house prices will fall 7 % and Melbourne prices 8 % in the financial year.
Domain analysis shows prior downturns lasted about eight months, fell 2.9 % and were followed by 32 % growth over three years.
Cotality reported a 47 % auction clearance rate in cities last week, the lowest since COVID-19, while Nicola Powell says downturns are shallow and will end when rates peak.

Summary

Reserve Bank Warns

Mortgage demand fell 6.6% in five months to May, with first-home-buyer enquiries dropping 9.1%.
The Reserve Bank warned that a housing market weakening could curb consumer spending.
The budget limited tax breaks for investor homes and raised gains tax to curb demand.
Westpac economist Matthew Hassan said investment-loan applications fell about 20%.
Rosewell Group CEO Louie Beaini warned construction costs rose 20-30% and planning delays hurt new projects.

Summary

Housing Market Falters

A YouGov poll found 49 % of voters want house prices to fall, 26 % unchanged, and 17 % to rise.
Building approvals fell 1.1 % in May to 17,019 homes, short of the 20,000-a-month target.
Investors are moving to $600,000-$1 million suburbs, heightening competition with first-home buyers, says agent Daniel Walsh.
The Housing Industry Association says affordability is at its lowest since 1994, with Sydney needing 2.1 times average income for a typical home.

Summary

Darwin Gains

Darwin was the only capital with home-price growth in June 2026, up 0.2 % and second-best behind Perth.
Regional median home prices are 9.5 % higher than a year ago, staying at record highs except Queensland.
Economist Anne Flaherty says Darwin’s affordability and rental yields keep investors geared, but reforms 1 July 2027 limiting negative gearing to new builds and replacing the 50 % CGT discount with an indexed tax will cut investor demand in 2026.

History

Historical Context

In early 1990s Australia, Paul Keating’s Treasury warned of a recession as the Reserve Bank of Australia managed monetary conditions, pushing unemployment to 10.8% by 1992. The downturn cut housing demand, deepening a brief but sharp decline in property values. After 1993, deregulation and continued reforms revived affordability, echoing past cycles.

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Domain Predicts Downturn

Domain forecasts that during ninth downturn in 30 years Sydney house prices will fall 7 % and Melbourne prices 8 % in the financial year.
Domain analysis shows prior downturns lasted about eight months, fell 2.9 % and were followed by 32 % growth over three years.
Cotality reported a 47 % auction clearance rate in cities last week, the lowest since COVID-19, while Nicola Powell says downturns are shallow and will end when rates peak.

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