Westpac expects the Reserve Bank (RBA) to raise the cash rate again in November, lifting it to a cycle high of 4.85%. National home prices are forecast to fall about 8% this calendar year, according to the bank’s October 2026 Market Outlook.
Westpac now forecasts a peak-to-trough fall in home prices of just over 10%. That would be the largest decline since national price measures began in 1980, although inflation-adjusted declines were steeper during earlier recessions.
Matthew Hassan, Westpac’s head of Australian macro-forecasting, wrote that the bank had long warned uncertainty could cause trading to dry up and prices to drop more sharply.
“That risk is crystallising with turnover already down 20% and prices off 8%,” Hassan wrote.
Sydney is expected to record the steepest fall in 2026 at 12%, ahead of Melbourne (8%), Brisbane (4%), and Perth and Adelaide (2% each). Rising borrowing costs and the federal budget’s overhaul of housing tax settings are weighing on demand, according to Westpac.
Westpac expects trimmed mean inflation of about 0.9% a quarter in the September and December quarters. That would keep annual underlying inflation around 3.5%.
“The Monetary Policy Board will want to see clear evidence of inflation coming down before withdrawing policy restrictiveness”, wrote Luci Ellis, chief economist of Westpac Group.
Westpac does not expect the rate-cutting phase to begin until August. Its forecasts show the cash rate holding at 4.85% until mid-2027, which would keep pressure on borrowing capacity for first-home buyers and property investors.
The broader economy offers little relief. The six-month annualised growth rate of the Westpac-Melbourne Institute Leading Index held at –0.03% in September, unchanged from August. That suggests the economy will expand at roughly its long-run pace, or slightly slower, into early 2027. Falling dwelling approvals were the largest drag on the index over the past six months. Westpac forecasts through-the-year growth of 1.5% in 2026.
The Westpac-Melbourne Institute Consumer Sentiment Index fell 4.7% to 80.4 in October, among the weakest readings since the survey began in the early 1970s. Westpac flagged 35-to-54-year-olds as particularly exposed, with high debt levels making rate rises a significant challenge for this group.
Westpac warned the margin for error “is starting to ‘wear thin’”.
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