Home buyers hoping for a meaningful housing correction under the proposed Federal budget tax shake up may be disappointed. New forecasts suggest only Sydney and Melbourne property prices are likely to record declines this year.
Our analysis of Westpac’s latest property price forecast, released on Tuesday, shows the median-priced house in Sydney could fall a further $29,601 through to the end of this year, while the median house price in Melbourne could drop by a further $18,128, between 1 May and 31 December, based on Cotality data.
Perth and Brisbane are expected to continue to power ahead, under the Westpac forecast, despite the three cash rate hikes and the Federal Government’s tax reforms, with house prices tipped to rise by around $39,000 and $32,000 respectively by the end of the year.
Potential median house | |||
|---|---|---|---|
City | Median | Estimated | Difference |
Sydney | $1,600,301 | $1,570,700 | -$29,601 |
Melbourne | $972,734 | $954,606 | -$18,128 |
Brisbane | $1,222,906 | $1,255,250 | +$32,344 |
Perth | $1,087,507 | $1,126,627 | +$39,120 |
Adelaide | $1,006,099 | $1,027,582 | +$21,483 |
Source: Canstar. Westpac property price forecasts, Cotality Home Value Index, 31 December 2025 and 31 April 2026. Assumes house prices change in line with dwelling forecasts. These calculations are estimates based on forecasts and may prove inaccurate. Forecasts should not be relied upon as the sole basis for making financial decisions. Individuals should consider their own circumstances and seek independent financial advice.
Borrowing capacity falling faster than prices
Sydney’s median house price has already fallen $18,977 in the first four months of 2026, according to Cotality data, however many home buying budgets have shrunk by even more.
Canstar analysis shows that a single person earning the average full-time wage, as recorded by the ABS, has already seen their maximum borrowing capacity drop by $35,800 as a result of the rate hikes, while a couple has seen their maximum budget drop by $71,600.
Drop in borrowing capacity | |
|---|---|
Individual | -$35,800 |
Couple | -$71,600 |
Source: Canstar. Calculations are estimates based on an owner-occupier taking out a 30-year loan at the average RBA rate with $25,000 in annual expenses and double for a couple. Assumes, no debts, no dependents, average wage based on ABS data.
However, if there are two more 0.25% cash rate hikes to come this year, as forecast by Westpac, then that same person’s borrowing capacity could shrink by around $57,600 in total – wiping out 10% of their buying budget since the start of the year.
Drop in borrowing capacity | |
|---|---|
Individual | -$57,600 |
Couple | -$115,200 |
Source: Canstar. Based on an owner-occupier taking out a 30-year loan at the average RBA rate. Assumes minimal expenses, no debts, no dependents, average wage based on ABS data.
APRA to maintain 3% serviceability buffer following review
One limiting factor in how much a person can borrow from the bank is the stress test APRA makes banks apply to new mortgage applications to make sure the new borrower can withstand higher rates.
Currently the stress test is 3 percentage points with the regulator confirming this week it will maintain the buffer at this setting, despite the higher-rate environment, with APRA noting that housing credit growth remained robust despite the rate hikes.
Impact of 3% buffer | ||
|---|---|---|
Rate | Monthly | |
Actual | 6.26% | $3,698 |
Stress | 9.26% | $4,940 |
Difference | 3.00 | +$1,242 |
Source: Canstar, APRA. Note: rates are Canstar estimates of RBA average rates, repayments based on an owner-occupier taking out a 30-year term variable rate loan with $600k debt.
Modest property price declines don’t necessarily improve affordability
Canstar's Data Insights Director, Sally Tindall, says, “Changes to negative gearing and capital gains tax risk pushing Sydney and Melbourne house prices even further into reverse, however, it’s unlikely to fall by as much as many first home buyers are hoping.”
“Westpac’s forecast of a continued drop in Sydney and Melbourne prices through to the end of the year might be psychologically significant, but numerically they’re ultimately pretty modest.
“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.
“Meanwhile, Perth and Brisbane continue to show remarkable resilience and are expected to continue on this trajectory. Even with three rate hikes in 2026 and two more potentially on the horizon, these cities are still expected to add $32,000 to $39,000 to their median house prices by year-end, based on Westpac’s forecast.
“Three rate hikes in quick succession have already taken a serious bite out of borrowing capacity, particularly in Sydney where buyers need to borrow significantly more just to get a foot in the door.
“Modest property price declines don’t necessarily improve affordability when higher mortgage rates are stripping tens of thousands of dollars from buyers’ budgets.
“Anyone hoping APRA might throw borrowers a lifeline by reducing the serviceability buffer will be disappointed.
“The 3 percentage point buffer has become an increasingly tough hurdle in a higher-rate environment because borrowers are now being assessed at rates pushing well above 9 per cent.
“However, lifting the buffer would more than likely lift property prices, which is the last thing most would-be first home buyers want.”
