House Prices Could Drop 10%: What Borrowers Should Know

With major banks revising forecasts down and the CGT discount scrapped, here's what shifting property values mean for your loan.

After decades of almost uninterrupted growth, Australian house prices are showing real signs of strain. Recent changes to the capital gains tax (CGT) discount — part of the federal government's 2026 budget — have shaken investor confidence, and the effects are now appearing in market data. For borrowers at every stage of the property journey, the months ahead will require clear thinking and sound advice.

What the Numbers Are Actually Telling Us

The big banks are not softening their outlooks. NAB has predicted a 2 per cent drop across major capital cities, while Commonwealth Bank has revised its growth estimate to just 3 per cent — down from an earlier forecast of 5 per cent. In Sydney, prices have already fallen by a reported 1.2 per cent in a single month.

Investment bank Morgan Stanley has gone further. According to [ABC News](https://www.abc.net.au/news/2026-07-03/what-would-a-house-price-fall-mean-for-australians/106827028), Morgan Stanley has predicted national house prices could fall between 5 and 10 per cent — which it describes as "one of the largest price corrections over the past 40 years."

To put that in perspective: a 10 per cent drop would return prices roughly to where they were in late 2024, when the average Australian dwelling first surpassed the $1 million mark. That figure itself represented a more than 400 per cent increase since 2000, when the average cost of a house in Australia sat between $205,000 and $215,000.

The affordability picture is stark. According to data from Cotality, the median house price is now 8.9 times the average income. Independent economist Nicki Hutley describes Australia as "one of the least affordable places in the world" when it comes to price-to-income ratio.

What Triggered the Slide?

The immediate catalyst is the federal government's decision to replace the longstanding 50 per cent CGT discount — introduced by the Howard government in 1999 — with a discount based on inflation. Combined with changes to negative gearing, this has dampened investor demand and contributed to falling auction clearance rates nationally.

Brisbane offers a striking example of how far values have run. House prices in Queensland's capital have more than doubled over the last six years, making even a moderate correction significant for recent buyers. Economist James Graham from the University of Sydney puts the numbers in perspective: "10 per cent sounds large and it is for some people, but it's not that large in the grand scheme of ongoing house price growth that we've seen."

Prime Minister Anthony Albanese has acknowledged the tensions, telling the ABC: "Everyone has acknowledged during this debate that the housing system is broken. Therefore we had to do something about it."

What This Means for Your Situation

**If you are a prospective buyer**, a market correction could open the door to properties that were previously out of reach — particularly in cities like Brisbane where values have run strongly. Use our [borrowing power calculator](/calculators/borrowing-power) to understand what you can comfortably service at current interest rates. Our [first home buyer hub](/home-loans/first-home-buyer) also outlines current support measures, including the shared equity schemes that remain available in the 2027 financial year.

**If you recently bought**, the prospect of price falls can feel alarming — but context matters. Dr Graham notes that if you are simply upgrading or upsizing within the same market, the property you sell and the one you buy will generally move in tandem: "People sometimes forget that. They feel like they've lost wealth, but as long as what you want to do with the wealth is just buy another home, it's kind of a wash." The more serious risk is negative equity: owing more than your home is worth. Hutley notes this is most acute for young buyers with higher debt levels who may be forced to sell. If this is a concern, speak to a broker about your current loan-to-value ratio and repayment buffer.

**If you are a property investor**, the CGT and negative gearing changes fundamentally alter the return equation on residential property. Review whether your current portfolio structure still stacks up under revised assumptions about price growth and after-tax returns. Our [investor home loans hub](/home-loans/investor) compares what lenders are currently offering for investment lending.

**If you are thinking about refinancing**, be aware that falling property values affect your accessible equity — and potentially your eligibility for competitive rates. If your home falls in value while your loan balance stays the same, your loan-to-value ratio rises, which can push you above the 80 per cent threshold where additional costs apply. Before acting, use our [refinance savings calculator](/calculators/refinance-savings) to model whether switching still makes financial sense under a lower valuation. You can also [compare the cheapest home loan rates](/home-loans/cheapest) currently available in the market.

The Broker Perspective

Volatility like this is exactly when good advice earns its value. Whether you are sitting on substantial equity you want to protect, deciding whether to buy your first home into a softening market, or reassessing whether your investment strategy still makes sense — the answer is rarely a single, simple action.

Hutley cautions that property price forecasts are notoriously difficult to get right, and that multiple forces are operating simultaneously: rising interest rates, changes to the tax treatment of investment properties, stretched valuations relative to incomes, and shifting buyer sentiment. Outcomes for individual borrowers depend heavily on their specific circumstances — loan balance, equity position, income stability, and long-term plans.

Talking to a broker who can map your numbers against the actual lending landscape available today is worth doing before conditions shift further in either direction.