I expect the current slowdown in the housing market to continue for some time

Over the first six months of 2026 there has been a noticeable softening of the housing market, I expect that this will continue.

Every six months I update my outlook for housing values. In the last instalment published in January 2026 I expected that in 2026 home values would continue to rise but the pace of growth would slow. We’re seeing that has occurred but the magnitude of the slowing is a lot larger than I had expected at that time.

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Over the 12 months to June 2026, national dwelling values have increased by 7.3% which is the slowest annual rate of growth since November 2025 and the growth has been consistently slowing since February 2026.

Amongst the capital cities, the strongest annual growth has been recorded in Perth (23.9%), Darwin (19.8%), Brisbane (17.4%) and Adelaide (11.6%) while values have fallen in Melbourne (-0.3%) and seen relatively more moderate growth in Sydney (0.3%), Canberra (2.9%) and Hobart (9.3%).

Hobart and Darwin are the only two capital cities which haven’t yet shown signs of a slowing of the rate of annual growth although quarterly growth rates have slipped from their peak.

Overall, I am expecting that the decline in national dwelling values we’ve seen over recent months will continue. Most regions in which values are still rising will see that rate of growth also continue to slow and that will eventually culminate in falling values in those markets too. I think this downturn is set to be one of the largest we’ve seen in many years.

Since the beggining of the 1980s, the largest peak-to-trough fall in national dwelling values, according to Cotality, has been a 7.5% fall between April 2022 and January 2023. Predicting a large decline in dwelling values has certainly been a widow-maker call over recent decades but historically large downturns in housing values have occurred, it’s just happened a long time before most of us can remember.

At an individual region or city level there have been plenty of examples of large housing market downturns over recent decades.

As you will read throughout this article, I expect that the current downturn in the housing market will turn out to be larger than the 7.5% downturn seen a few years back. We have a somewhat perfect storm of low affordability, low sentiment toward housing, a weakening economy with productivity growth terrible, reduced incentives to invest in housing, relatively high interest rates and high inflation that looks set to continue for some time.

Keep in mind as you read this, these are my views and not the views of anyone that I work for.

Factors weighing on the outlook for home values

Interest rates

The cash rate has been increased by 25 basis points on three separate occasions across four RBA Monetary Policy Board meetings in the first half of 2026. The cash rate is now back at 4.35% which it sat at through most of 2024 however, prior to that you have to go back to 2011 for the last time the cash rate was this high.

Market expectations are quite line-ball for another rate hike but with persistent inflation it can’t be ruled out. The market also has no expectation of any cuts to rates out until the end of 2027.

It’s unlikely market expectations end up being what occurs but I believe we’re underestimating both the likelihood of further cash rate increases and rate cuts over the second-half of 2027.

Higher interest rates for longer will continue to weigh on housing confidence and borrowing capacities.

Housing affordability

Despite some recent declines in home values which are now nationally 0.7% below their peak, housing affordability remains quite stretched. Home owners appreciate higher home values because it makes them feel wealthier but it means they have to pay a higher price to upgrade. For those that don’t own a home high housing prices are a barrier to entry.

According to Cotality, national home values have increased by 31.3% over the five years to June 2026, ranging from capital city growth of just 1.2% in Melbourne to an 89.6% increase in Perth.

Over the past decade, national home values were 73.7% higher with Melbourne seeing the weakest growth of all capital cities (32.2%) and Brisbane having the largest growth (119.0%).

The significant growth in dwelling values over recent years, the ongoing high rate of inflation which is reducing individuals’ spare cash and the higher interest rates which are reducing borrowing capacities are likely to be a binding constraint on how much higher values can rise over the short term. Especially when we consider the persistent weak growth in wages and weak productivity growth.

Population growth

The rate of population growth has continued to slow over recent quarters however, the overall increase in the population and the share of increase coming from net overseas migration remains historically elevated.

The ABS reports that over the 12 months to December 2025, the national population increased by an estimated 412,494 persons, a 1.5% rate of growth. The number of people added to the population over the year was the fewest since June 2022 and the annual rate of growth was also the slowest since that time.

The rate of growth is now back around pre-pandemic levels but with the jump in the overall population it means we’re adding more people.

The composition of population growth is also important. Of the 412,494 new residents over the year, 300,955 were net overseas migrants, accounting for almost three quarters of the population increase.

People arriving in Australia typically don’t have anywhere to live so they create more demand for housing, rental housing mostly, than if you have a larger proportion of population growth from natural increase (babies typically join households, not create new ones).

New housing supply

The federal government has a goal under the Housing Accord to build 1.2 million new homes over the five years to June 2029. We have the first 21 months of data and we’re falling well short of this target and the prospects of things improving look quite slim.

The 1.2 million new dwellings over five years translates into 240,000 annually or 60,000 each quarter. Whichever way you look at it, it is a volume of home building never before achieved.

Whilst we’re falling well short, market conditions are certainly not conducive to delivering this volume of new housing. Construction costs are up 35% to 40% over the past five years and they are starting to rise again, labour shortages persist, interest rates are elevated thinning out buyer numbers and impacting on feasibility and construction timeframes have increased.

Over the 12 months to March 2026, 173,367 dwellings were completed which was actually 4% lower than the same 12-month period last year.

With interest rates and inflation likely to remain elevated and construction costs rising once more the prospects for getting anywhere near the target are not strong. We may see an increase in completions over the short term because of a recent pick-up in commencements and due to a large volume of stock under construction. But thereafter I expect completions to trend lower due to falling commencements.

This will exacerbate the shortage of housing in the country. There’s no doubt there is a lot of demand for housing, but being able to afford housing, both from a rental and a home ownership perspective, is a real challenge right now.

Existing stock for sale

Over the first-half of 2026, the number of properties available for sale has been trending higher. The volume of stock for sale is still below pre-pandemic levels but it is climbing as more properties come to market and properties take longer to sell as buyer demand thins.

Sydney, Melbourne and Canberra have experienced an ongoing high volume of stock for sale for a few years now and that is continuing. Hobart has seen stock levels moderate from highs and it is now trending lower.

On an historic basis, stock levels remain low in the other capital cities but they are trending higher and I would anticipate that continues over the second-half of this year.

I’ve already discussed how there are fewer people looking to purchase properties than there were even six months ago and the lower volume of buyers are faced with more stock to choose from.

Rising or high stock levels and lower buyer demand is a recipe to see transaction conditions swing in favour of the buyer and are likely to lead to further value declines in some markets and a slowing of the growth in values elsewhere. Of course, these conditions are already unfolding and I expect they will continue.