First home buyers who purchased with deposits of as little as 5% could be in negative equity by the end of this year, if CBA’s new property price predictions come to fruition.
CBA’s latest forecast, released yesterday on the back of three cash rate hikes and the government’s proposed housing reforms, now predicts Sydney property prices will drop by a total of 6% this year, with Melbourne falling by a total of 7% from January through to December 2026.
Australia’s largest bank expects both markets will rise again in 2027, buoyed by two RBA cash rate cuts.
Perth and Brisbane are expected to continue to power ahead, with dwelling prices tipped to rise by 12% and 8% respectively by the end of this year by CBA’s economic team.
CBA dwelling | ||
|---|---|---|
2026 | 2027 | |
Sydney | -6% | +3% |
Melbourne | -7% | +3% |
Brisbane | +8% | +4% |
Perth | +12% | +4% |
Adelaide | +6% | +3% |
Hobart | +4% | +2% |
Canberra | -2% | +3% |
Darwin | +8% | +3% |
Source: CBA economic insights released 3 June 2026.
Recent first home buyers could find themselves in negative equity
Canstar analysis of this latest property price forecast, shows a first home buyer who, with a 5% deposit, purchased a $1.5 million property in Sydney – the maximum property price under the government’s Home Guarantee scheme – could end up with next-to-no equity by the end of the year.
In Melbourne, a 7% drop from beginning to end of the year could see a 5% Home Guarantee buyer dip into negative equity by the end of the year, despite having made principal and interest repayments for 12 months.
First home buyer | |||
|---|---|---|---|
| Sydney | Melbourne | Perth |
Purchase price | $1.5 | $950,000 | $850,000 |
Equity at | 5% | 5% | 5% |
End Dec 2026 | |||
Principal paid | $92,377 | $58,505 | $52,347 |
Equity % | 0.2% | -1% | 16% |
Equity (value of | $2,377 | -$7,995 | $154,347 |
Source: Canstar. Based on an owner-occupier buying a property at the upper limit of the Home Guarantee Scheme on 1 January 2026, taking out a 30-year loan at the average new customer variable rate and making standard principal and interest payments in that time. Assumes that mortgage rates do not change for the remainder of the year.
Outlook for interest rates highly uncertain
Interest rates look set to remain restrictive for the remainder of the year, with Westpac and NAB still expecting at least one more cash rate hike.
However, CBA now expects the RBA will potentially cut in May and August next year, taking the cash rate back to 3.85%.
Current big four bank | |
|---|---|
CBA | Hold in 2026, |
Westpac | 2 x 0.25 hikes, |
NAB | 1 x 0.25 hike, |
ANZ | No change |
Negative equity isn’t a crisis if you plan to stay put and keep making repayments
Canstar's Data Insights Director, Sally Tindall, says, “For aspiring buyers who’ve spent years watching house prices run away from them, forecasts of falling prices in Sydney and Melbourne might sound like welcome news. However, for those who only recently scraped together a deposit to get into the market, these declines could leave them dangerously close to negative equity.”
“A buyer who purchased with a 5 per cent deposit at the start of this year has very little buffer against falling property prices. If CBA’s forecasts play out, some recent buyers in Melbourne could owe the bank more than their home is worth by the end of the year, despite making their mortgage repayments on time.
“Negative equity isn’t necessarily a crisis if you plan to stay put and keep making repayments, but it can become a major problem if you’re forced to sell or want to refinance.
“If you do find yourself in this position, don’t panic. Instead, put your head down and keep your mortgage repayments up.
“It’s important to remember, these forecasts aren’t pointing to a property market crash or a long-term downturn. Sydney and Melbourne prices are expected to start rising again in 2027, while markets such as Brisbane and Perth are expected to keep on defying everything in their path and post hefty gains.
“In fact, the bigger challenge for many Australians remains affordability. A 6 or 7 per cent fall in house prices might sound significant, but when you’re talking about markets that have seen years of strong growth, combined with three cash rate hikes eroding borrowing capacity, it’s unlikely to suddenly make home ownership easy.
“CBA’s forecast of two cash rate cuts next year would provide some welcome relief for borrowers if they materialise, but it will be a long time coming and might not happen at all in 2027.
“What's particularly striking is how divided the banks have become on the outlook for interest rates. While CBA is forecasting cuts next year, Westpac and NAB are both tipping a further hike, two in the case of Westpac. Borrowers should prepare for a range of scenarios rather than assuming rate relief is locked in.”
