National Australia Bank (NAB) said property prices could soon fall, causing would-be buyers and existing homeowners to wait on the sidelines.
According to the major bank's June Housing Monitor, NAB predicted house prices will fall 2% nationally over the coming year. In places like Sydney and Melbourne, values could plunge by as much as 6% to 7%.
"I think because there's talk of prices falling, people are waiting for the fall to happen [before purchasing]," Adam Bradley, founder and director of Brisbane-based Emerge Finance, told Australian Broker. "There's just a lot of uncertainty with cost of living and rates. And the budget hasn't helped, as well. So everyone's just sitting on their hands waiting to see what is going to get passed with all of the changes."
But even before the proposed changes to the 2026 to 2027 federal budget were revealed, property price growth was already losing momentum. Dwelling prices across Australia's combined capital cities was down -0.1% in May, month-over-month, according to the report, the weakest monthly result since late 2024. The declines were sharpest in Sydney and Melbourne, where prices fell 0.9% and 0.8%, respectively. Canberra also recorded losses, down 0.2%.
The monthly softness is a reversal from the broader annual trend. The report found that dwelling prices across the combined capital cities were up 7.8%, year-over-year.
Still, the bank warned that "a more pronounced cycle [of declines] is now likely" thanks in part to the looming tax changes. The downturn is also unfolding alongside higher interest rates, rising living costs, persistent inflation, early signs of the labour market softening and broader economic uncertainty, both domestically and overseas.
"Reforms to CGT and negative gearing that reduce incentives for low-yielding [and] high-debt investment in established property and come against a backdrop of higher interest rates and elevated uncertainty which had seen the beginnings of a downturn in house prices," said the NAB report.
Brokers have said that despite increased consumer spending, people are reluctant to spend more on property at the moment.
"We absolutely have seen a shift, and absolutely have seen people now buying properties at levels lower than what they would have been able to over the last 12 months," said Brenden Lowbridge, managing director and finance specialist at Newcastle-based Money Links.
"I would say that the reason we've actually seen some price decreases is because there's fewer people actively looking in the market now," he continued. "It is a lot harder at the moment, particularly for agents around where we operate, to sell property just because there are less willing buyers available. So the owners who are committed to selling are in many cases having to take a lesser offer than what they ultimately had hoped."
Bradley agreed that market uncertainty is driving many prospective buyers to hold off, which in turn is forcing more urgent sellers to consider price reductions.
"I think buyers are thinking, 'why would I buy now if prices are going to be potentially cheaper in three to six months time?'" he said. "And no one wants to sell at a lower price. So if you're not desperately needing to sell, you'd probably just hold onto it until the market recoups."
Instead, Bradley said more buyers are choosing to invest in their existing properties.
"We're seeing a lot more people looking to upgrade," he explained. "And they might be able to do that without selling their existing property. They might be able to get a good deal on a new purchase and then just hold their existing property as an investment, rent it out for 12 to 24 months, and then maybe sell that when the market picks up a bit more.
"If you're going to go and spend a million dollars, or $1.5 million, on an investment property, but then not get the negative gearing benefits, it's definitely going to cost the owner money every month and then they're going to pay more tax on exit," Bradley continued. "So they are better off putting that capital into a tax-free asset that increases their lifestyle. They don't get the rental return, but at least when they sell they don't have to pay any tax on exit on their primary place of residence. So they might be able to get the best of both worlds."
Meanwhile, rents continue to rise. Advertised rents grew 5.9%, in the 12 months ending in May, according to NAB's report.
