House Prices Could Drop 15%: Should You Buy, Hold or Wait?
AMP's chief economist has deepened his forecast after six straight months of national price falls. Here's how to navigate the downturn.
Six months into a housing correction that has deepened far beyond early forecasts, AMP's chief economist Shane Oliver has raised his price fall prediction again. MPA Australia reports that Oliver now expects Australian home values to fall between 10% and 15% from their peak — a midpoint of 12.5% — following new data showing September's sixth consecutive monthly national price decline.
National home values are already 5.2% below their high on some measures, or around 3.3% on more conservative estimates. Either way, Oliver's central forecast suggests we're not yet at the halfway point of this correction. As recently as July, AMP had been forecasting just a 6% peak-to-trough decline. It revised that to 10% as conditions worsened. The latest 10–15% range reflects what Oliver describes as a "perfect storm continuing to hit the property market."
What's Driving the Downturn?
Oliver identifies four overlapping forces working against the market.
Rising interest rates are the most immediate pressure. The RBA's fourth hike of 2026 this week pushed the cash rate to 4.60%, a 15-year high. For a buyer on average earnings with a 20% deposit, the latest rise cuts what they can pay for a home by another $11,000 — bringing the total reduction in purchasing capacity this year to nearly $45,000. For existing borrowers, the latest move adds roughly $110 a month to mortgage interest payments and around $440 a month since January. Oliver describes this as "quite an impost" and warns we "may be close to a tipping point for some mortgage holders."
Investor tax changes from the Federal Budget have curtailed demand by tightening negative gearing entitlements and changing how capital gains on investment properties are treated. Oliver says it makes sense for investors to "sit on the sidelines until they see lower prices or higher rents or some combination of the two resulting in a higher starting point rental yield before they invest to compensate for the higher tax rate they now face."
Record affordability pressures also remain severe. Against long-term, inflation-adjusted price-to-rent ratios, AMP estimates houses are approximately 35% overvalued nationally. Units are far less stretched at around 8% overvalued — explaining why the apartment sector is holding up better through this correction.
Weak buyer confidence compounds everything else. When inflation, fuel costs and four rate hikes in a year have squeezed every household budget, the appetite to take on a new mortgage falls — and lower demand accelerates price declines.
Where Are Prices Falling Hardest?
The geographic picture is stark. Sydney is leading the downturn, with values down 8.6% from their peak. Every capital city except Darwin is now recording declines, and data from Cotality shows 97% of capital city suburbs recorded a price fall over the past three months. Oliver expects Sydney, Brisbane and Adelaide to see the deepest further falls from here, while Melbourne — which didn't rise as sharply in recent years — is likely to see a shallower correction.
For first home buyers, the picture is more nuanced than the headlines suggest. Units and more affordable properties should hold up better, they're more accessible on current incomes, and the expanded 5% Deposit Scheme is providing support to entry-level markets. Buyers who can move in the current environment may find opportunities in the unit space that weren't available 18 months ago. Use the LMI calculator to understand your upfront costs if you're buying with a smaller deposit.
For property investors, the entry-point calculation has become harder. Falling values, higher borrowing costs and changed tax settings require a clear view of expected yields and long-term capital assumptions before committing. Oliver suggests the market may offer better risk-adjusted opportunities once prices stabilise closer to the mid-2027 trough.
When Will the Market Bottom Out?
AMP expects the market to trough around the June quarter of 2027. Rate cuts are not expected until the second half of 2027 — Oliver describes meaningful relief as "a long way off, absent a crisis." A sharp further fall in home prices could bring cuts forward, but that scenario carries its own risks.
Three factors are providing a floor under the market. The first is a structural housing shortfall: AMP estimates between 200,000 and 300,000 fewer dwellings than demand requires, which provides long-run support for prices even as the near-term correction plays out. The second is a labour market that, while softening, hasn't yet produced the wave of distressed sales that would accelerate the correction — unemployment currently sits at 4.6%. The third is the first home buyer scheme, which is sustaining activity at the affordable end of the market.
The key downside risk Oliver highlights is the spring selling season. Vendors who have been holding out for better prices will face a real test of resolve as buyer demand remains soft. Any meaningful rise in unemployment could tip more owners toward forced sales and steepen the correction further. For recent buyers with small deposits — including those who bought under the 5% Deposit Scheme around the end of 2025 — the prospect of negative equity is a growing concern if conditions deteriorate.
For borrowers navigating this environment — whether buying, refinancing or holding — use the borrowing power calculator to model how your position looks at current and potentially higher rates. Understanding your numbers before conditions shift further is the best protection against being forced into a decision at the wrong time.