Will House Prices Drop in Australia? What It Means for First-Home Buyers

Australian house prices are falling across almost every capital, with analysts calling it the biggest correction in decades. So, will prices drop far enough to make buying a first home easier? 

Here is what the headlines skip. Prices are falling, but not evenly. The hardest-hit homes are rarely what first-home buyers are looking for. 

That difference matters if you are sitting on a deposit, wondering whether to wait.

Are House Prices Falling in Australia?

Yes. National dwelling values fell 3.1% over the three months to August 2026, according to Cotality's Home Value Index. Most forecasters expect more falls into 2027. But the drop is concentrated at the expensive end. Upper quartile houses in Sydney are down 10.7% from their peak. The cheapest quarter of that same market is down 5.4%. That gap decides what this downturn means for you. 

Most first home buyers shop in the segment holding up best. That is why waiting for a bigger fall rarely pays off. Osinski Finance has arranged home loans across Perth and WA since 2017, and the team brings 25 years of combined banking and finance experience. The pattern we see is consistent. The buyers who get in are the ones who worked out what they could borrow, not the ones who waited on a forecast. If you are just starting, our first home buyer guide covers what is available right now. 

Where the Market Actually Stands Right Now

The big picture is that home values nationally dropped 3.1% over the three months to August 2026. Annual growth was still positive at 2.7%. So the market is softening, not collapsing.

But conditions vary between capital cities and across market segments. That is where the useful detail sits.

How it feels on the ground tells you more than the percentage. Homes are sitting longer, with median time on market up to 39 days from 28. Sellers are discounting more, at a median of 4.2%. The auction clearance rate has drifted to about 49.5%. Below 50%, buyers start setting the terms.

Why House Prices Are Falling Across Australia

Three things turned the market.

The first is the cost of money. Since the start of 2026,three rate hikes have taken the Reserve Bank's cash rate target to 4.35%. The next decision is due on 29 September. Every rise cut what buyers could borrow.

The second is affordability, which was already stretched before any of this began.

The third is the May 2026 Budget. It restricted negative gearing on established property from 1 July 2027 and replaced the capital gains tax discount. That pulled investors out of the market, and investors were doing a lot of the buying.

Where the Falls Are Actually Happening

The national average hides the most useful thing in this market. 

Expensive homes are falling hardest

Higher-value housing is recording larger price declines than affordable homes. Measured peak to trough, upper quartile houses in Sydney are down 10.7%. Melbourne is down 10.5%. At the luxury end, some values are seeing price falls of up to 10%. Those are the numbers behind the alarming headlines, and they are real.

The reason is simple. Not many people can afford a home at the top of the market. That group shrinks fast when borrowing costs rise. Fewer buyers means less competition, and sellers have to meet the market.

Entry-level homes are holding up

It is a very different picture at the more affordable end of the market. Apply the same peak-to-trough measure to the cheapest quarter, and the picture flips. Sydney's lower quartile home values are down 5.4%, about half the fall at the top. Melbourne's are down 3.9%, barely a third of it. 

All figures are peak to trough from Cotality's Home Value Index, as reported in September 2026.

The quarterly numbers tell the same story. Over the three months to August, values across the top 25% of the Sydney market fell 5.7%. In the most affordable 25%, theyfell by just 2.1%. Melbourne ran the same way, down 5.3% at the top against 1.3% at the bottom.

As Cotality puts it, high-end homes are leading the downturn, whilelower-priced houses and units prove more resilient. The pattern holds across almost every state capital.

It is not universal, though. Hobart and Darwin bucked the trend, with values in their most affordable segments rising over the quarter. Canberra units run the other way again, with lower quartile values down 2.9% against 1.6% at the top. Anyone telling you a property market moves in one direction everywhere is selling something.

What this means if you are buying your first home

Most first-home buyers in Australia are not bidding on upper-quartile houses. They are looking at entry-level homes and units. That is the segment where values have fallen least.

So the 10% fall in the headline isn't the fall you'll experience. Waiting for it to reach your price bracket may mean waiting for something that never arrives.

What the Forecasts Actually Say

Every bank has a number. The useful part is how far apart they are. 

• ANZ forecasts capital city prices down 4.3% in 2026 and 3.4% in 2027, a peak-to-trough fall of around 10.6%
• NAB has revised it to around 10%
• CBA puts the national figure near 9% from the 2026 peak, with Sydney nearer 13% and Melbourne nearer 12%
• Morgan Stanley has the range at 5% to 10%
• AMP expects around 1% this year and around 5% across 2026-27

That is a spread from 1% to 13%. Everyone agrees house prices are falling across Australia. Almost nobody agrees on how far. When the professionals disagree by that much, the honest answer is that nobody knows. It is not a number to build a plan on.

One caveat most coverage skips. A real crash, the 15% to 20% kind, needs widespread forced selling. That does not happen without a sharp rise in unemployment. People will do almost anything to keep paying a mortgage before they sell the house they live in. Rate rises hurt. They rarely produce fire sales.

Why Waiting for a Bigger Fall Can Backfire

Waiting sounds cautious. When rates are rising, it is often the opposite. 

Rate rises cut what you can borrow

When rates rise, lenders do not just charge you more. They assess you against a higher repayment. The maximum loan they will approve gets smaller.

Your income has not changed. Your deposit has not changed. Your borrowing power has.

This year's rate rises have alreadyreduced the borrowing power of a lot of buyers. That is the trap. A home in your bracket might drop 3% while your capacity drops further. You end up shopping in a cheaper market with less money. We run this maths with clients every week, and it is why "wait and see" needs checking against real numbers.

You are competing in the busiest part of the market

Demand at the entry level has not gone anywhere. ABS Lending Indicators show that in the June quarter of 2026,over 29,000 first homebuyers purchased a place of their own. That is about the same number as the same quarter a year earlier. Rates rose, headline values fell, and the number of people buying their first home barely moved.

Government support explains much of it. The5% Deposit Scheme now runs with no income caps and no waitlists, and removes lenders' mortgage insurance for eligible buyers. Single parents and legal guardians can buy on a 2% deposit. Add theFirst Home Owner Grant and state stamp duty concessions, and a steady stream of buyers is pointed straight at affordable stock.

Buyers have noticed where the value is. Across some cheaper suburbs, thenumber of online buyer searches has more than doubled compared to a year ago.

The arithmetic follows. More buyers chasing fewer affordable homes puts a floor under prices in exactly the bracket you are shopping in. It does not guarantee prices rise. It does explain why they are falling so much less.

Waiting has its own costs

There is a second column that rarely gets totalled up. 

• Rent paid while you wait, which buys you nothing
• Scheme price caps and eligibility rules, which can change
• The risk of being ready to buy at the exact moment everyone else is

None of that is a reason to rush. It is a reason to count both columns. 

Questions worth answering before you decide to wait:

1. How much closer will your deposit realistically be in twelve months?
2. What will you have paid in rent over that period?
3. Are you eligible for a scheme or grant now that has rules which could change?
4. What can you borrow today, and what would you be able to borrow after another rate rise?
5. Are the homes you are actually looking at falling in price, or only the ones in the news?
6. If prices in your bracket stayed flat for two years, would waiting still have been worth it?

What This Looks Like in Perth & WA

The national story is not the WA story. A buyer here acting on Sydney headlines is working from the wrong market.

Two things set Perth apart. First, price movements here have been spread evenly across value segments, the same as Brisbane and Adelaide. The gap between upper and lower quartile houses sits under one percentage point. There’s no Sydney-Melbourne-style two-speed split. 

Second, the direction. Domain's forecasts for the 2026-27 financial year have Perth house prices rising 5% to 9%, against falls of 3% to 8% for Sydney and Melbourne. It is still a forecast, so read it alongside the national spread above. But it points the opposite way to the national story.

"If you're buying in WA" - pull the two points above into a short boxed summary so it stands out from the body copy on the page.]

Plenty of first home buyers in Australia are weighing up whether to wait. In WA, that decision is being made against a market that is not the one in the headlines. Our Rockingham mortgage broker page covers how we work with buyers across the local area. 

How to Know If You Are Ready to Buy Now

The right time to buy has less to do with the market and more to do with you. Four things decide it. 

Work out what you can actually borrow

Not what a calculator suggests. Not what your capacity was last year. Lenders assess differently from one another, and on the same income the gap between the most and least generous can be large. Get this number first, because everything else follows from it. 

Check your deposit against the scheme you intend to use

A 5% deposit changes the picture. But eligibility and price caps apply, and they move. Knowing your bracket tells you what you are really shopping for. 

Understand that pre-approval has a shelf life

Pre-approvals expire, usually after three to six months. A rate change during that window can also alter what you qualify for before the expiry date. Our post onwhat to do if rates lift again before Christmas covers what that means in practice. 

Be honest about income stability

Lenders will be. If your work situation is about to change, factor it in now rather than mid-application. 

Ready to Know What You Can Borrow? Osinski Finance Can Help 

So, are prices coming down? Nationally, yes. Where most first-home buyers are looking, far less. In Perth, different again.

And the pressure sits at the affordable end. As affordability pressures push demand toward cheaper markets, cheaper suburbs stay in demand. Values there could hold. They could even climb while you wait for them to fall.

So stop asking what the market does next year. Ask what you can borrow this week. That number shifts with every rate decision.

Osinski Finance starts with one thing. Know your number. Whether you are buying your first home,comparing nearly 100 lenders, or investing, decide on facts, not headlines.

One conversation beats another year of forecasts. Contact us and find out where you stand.

Key Takeaways

• National dwelling values fell 3.1% over the three months to August 2026, with annual growth still positive at 2.7%
• The falls sit at the top of the market. Upper quartile Sydney houses are down 10.7% peak to trough, against 5.4% for the cheapest quarter
• Entry-level homes and units are falling the least, so the headline percentage is not the fall a first home buyer would experience
• Rate rises reduce how much you can borrow, so a cheaper home is no advantage if your capacity has dropped further
• First home buyer demand has held steady, backed by the 5% Deposit Scheme and other incentives, which puts a floor under affordable stock
• Perth has not followed Sydney and Melbourne, with falls spread evenly and some forecasters expecting growth

Frequently Asked Questions About Australian House Prices

Will house prices drop in Australia in 2027?

Most forecasters expect further falls into 2027, with the market tipped to find a floor around the middle to latter part of that year. The forecasts vary widely, from around 1% to around 13% depending on who is publishing. That spread is a reason to treat any single figure with caution. A forecast is context, not a plan you can bank on. 

Are house prices falling in Australia in every city?

No. Sydney and Melbourne are leading the declines. Brisbane, Adelaide and Perth are behaving quite differently, with falls spread evenly across value segments. Within any city, the picture also splits by price bracket, with expensive homes falling much harder than affordable ones. National averages hide both differences. 

Why are expensive homes falling faster than cheaper ones?

Not many buyers can afford a home at the top of the market, and that group shrinks quickly when borrowing costs rise. Fewer competing buyers means sellers have to meet the market to sell. At the entry level, demand has stayed steady because first home buyer numbers have held up and government incentives keep supporting that segment. 

Should I wait for house prices to drop before buying my first home?

That depends far more on your position than on the forecast. A lower price is no help if rising rates have cut your borrowing capacity by more than the price fall. Work out what you can borrow now, what you could borrow after another rate rise, and what homes in your actual bracket are doing. Then decide. 

How much have house prices fallen in Australia?

National dwelling values fell 3.1% over the three months to August 2026, with annual growth still positive at 2.7%, according to Cotality's Home Value Index. Measured from their peak, the falls are far larger at the expensive end than at the affordable end. Check the most recent Home Value Index release for current figures, as these update monthly. 

Do rate rises affect how much I can borrow?

Yes, and most buyers underestimate it. When rates rise, lenders assess you against a higher repayment, which reduces the maximum loan they will approve. Your income has not changed, but your capacity has. It is the main reason a falling market does not automatically make buying easier. 

What is the 5% Deposit Scheme and can I still use it?

It is a federal government scheme that lets eligible first home buyers purchase with a 5% deposit and no lender's mortgage insurance. Single parents and legal guardians are eligible at 2%. Income caps and waitlists were removed from October 2025. Property price caps still apply and vary by location, so confirm the cap for your area before setting a budget. 

Will house prices drop in Perth?

Perth has not followed Sydney and Melbourne. Price movements here have been spread much more evenly across value segments, and Domain's forecasts for 2026-27 have Perth rising rather than falling. Forecasts are uncertain by nature, but this market is clearly behaving differently to the eastern capitals. 

Is now a good time to buy a first home in Australia?

The better question is whether you are in a position to buy, because that is the part you control. It comes down to your deposit, the stability of your income, and what a lender will actually approve. Buyers with those three sorted tend to do well in a softer market, because there is less competition and more room to negotiate. 

What happens to my pre-approval if rates change?

Pre-approvals expire, usually after three to six months. A rate change can also alter what you qualify for before that date arrives. If rates move while you are house hunting, have your pre-approval reviewed rather than assuming the original figure still stands. Finding out at the offer stage that your approved amount has shrunk is a hard position to be in. 

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