House Prices Falling? What the RBA's Own Stress Test Reveals

RBA modelling shows fewer than 4% of borrowers would miss payments even in a severe 40% price fall, as WA renters call loudly for a correction.

With capital city house prices falling and conversation about where they go next getting louder, new research from Western Australia offers two findings that most Australian borrowers will want to consider carefully: one about public sentiment on housing values, and another about what actually happens to mortgage books when prices fall sharply.

MPA Australia reports on the inaugural Western AustraliaNOW report — a quarterly survey from GRA Partners and Quantum Market Research, based on a nationally representative sample of 1,515 people including 162 West Australians, conducted across May and June 2026.

The RBA Stress Test Finding That Changes the Frame

Before getting into what Australians say they want to happen to house prices, it is worth understanding what the Reserve Bank has already modelled for a severe price downturn.

The RBA's own stress testing found that even in a scenario involving double-digit unemployment and a 40 per cent fall in housing values — a combination far more extreme than anything currently being forecast — fewer than 4 per cent of borrowers would be expected to fall behind on their loan repayments. The majority of borrowers in that scenario would retain enough equity to sell their property without exposing their lender to a loss.

That finding matters because it recalibrates the risk picture for existing mortgage holders watching prices soften with anxiety. The question most borrowers are quietly asking — "what happens to me if prices keep falling?" — has been modelled by regulators, and the answer for most households is considerably less alarming than the commentary might suggest.

The structural reason is APRA's serviceability buffer, which requires banks to test whether new borrowers can absorb a 3 percentage point rise on their loan rate above the offer rate. In place since 2021 and held steady through the current tightening cycle, the buffer is a key reason why Australian mortgage books carry more resilience than sentiment alone would imply. Under current settings, banks are assessing new borrowers at rates approaching 9 per cent. That means most recent borrowers demonstrated they could service a rate significantly above what they are currently paying — and many retain meaningful equity as a further backstop.

The RBA raised the cash rate three times in 2026, bringing it to 4.35%, as it responded to cost pressures tied to the global energy shock. Even under that trajectory, the stress test modelling reflects a book that was built with more headroom than borrowers sometimes appreciate.

Perth Tells a Different Story

The contrast between these stress test findings and the actual Perth property market is striking. Perth dwelling values rose 0.7 per cent in June 2026 alone, pushing the median to $1,046,551. Over the past year, Perth recorded annual price growth of 23.9 per cent — the fastest of any Australian capital. Units led the charge, up 26.3 per cent annually, compared with 23.6 per cent for houses.

That momentum has continued despite three rate rises in 2026. The hikes that have cooled Sydney, Melbourne, and increasingly Brisbane and Adelaide have not produced the same moderating effect in Perth, where housing demand has consistently outpaced supply.

The WA polling reveals a sharp divide between who wants prices to fall and who does not. Among West Australian renters, 37 per cent said house prices could reasonably fall by more than 20 per cent. Among outright homeowners, that figure was just 7 per cent — meaning WA renters are roughly five times more likely than owners to accept a correction of that magnitude.

Across the broader national sample, 32 per cent of voters said they would accept declines of 11 per cent or more, while 34 per cent would accept more modest falls of up to 10 per cent. Just 6 per cent said prices should not fall under any circumstances, and 28 per cent said they were uncertain what level of decline would be reasonable.

GRA Partners managing partner Jason Marocchi said the results challenge a long-held assumption in the housing policy debate. "There's a long-held belief that voters won't tolerate lower house prices," he said, adding that the affordability crisis had made that view difficult to sustain.

That sentiment sits against a Perth market that is still rising strongly. The Bankwest Curtin Economics Centre's Housing Affordability in Western Australia 2025 report provides useful context: only 44 per cent of WA residents believe they will ever own a home, citing purchase affordability and deposit constraints as the main reasons for renting long term, against what the report described as "a chronic imbalance between soaring demand and stagnant supply."

Among WA respondents aged 18-39, the appetite for correction is even stronger: 45 per cent said falls of 11 per cent or more would be reasonable. That generational skew reflects the reality that younger households face the steepest barriers to entry, and it is consistent with the affordability data showing Perth's median has now crossed the $1 million mark.

Supply Isn't Catching Up

On the supply side, the pipeline remains uneven. Total dwelling approvals in Western Australia fell 1.3 per cent in May 2026, though approvals for private sector houses rose 9.9 per cent over the same month. Those figures have swung between gains and falls for several months, pointing to an inconsistent pipeline rather than a sustained lift in new stock.

Sentiment toward more density is cautious. Nearly half of WA respondents — 49 per cent — said they would support a small increase of up to 10 per cent more homes in their local area, while only 16 per cent backed growth of 11 to 20 per cent. Larger increases drew little support. Apartments face a scale problem rather than an outright stigma: 40 per cent said they would accept developments of up to 50 units locally, but only 11 per cent would accept more. Low-rise projects of one to three storeys drew support from 30 per cent of voters, falling to 12 per cent for mid-rise and 7 per cent for high-rise. On-site parking, height limits, and green space were the factors most likely to make apartment developments acceptable to local communities.

The survey carries a maximum margin of error of ±2.5% at the 95% confidence level.

What You Should Take From This

For existing mortgage holders, the RBA's stress test modelling is the most practically useful finding here. Most borrowers entered the market having been assessed against significantly higher rates than they are currently paying. In a moderate price downturn, the combination of equity already built and the serviceability buffer means the risk of forced distress is lower than the headlines often suggest.

For renters in WA and other high-cost markets, the data reflects genuine affordability pressure — but the supply pipeline suggests the relief that some are hoping for will take time to materialise structurally.

For buyers considering Perth specifically, the borrowing power calculator is a useful starting point given that the median has crossed $1 million and banks are currently assessing applications at rates near 9 per cent. If you are a first home buyer navigating entry into any of Australia's capital markets, our first home buyer hub outlines the support currently available.

And if you are an existing borrower concerned about how your equity position is tracking in a softening market, a conversation with a broker about your refinancing options is worth having sooner rather than later.

MPA Australia reports on the full findings of the Western AustraliaNOW survey.