Sydney and Melbourne face significant housing price declines as market softens

Major property analysts are forecasting substantial house price falls across Australia's two largest cities, with Sydney and Melbourne expected to lead a national market correction over the next 12 months.

Domain, Australia's largest real estate platform, predicts Sydney house prices could decline by up to 7 per cent—potentially wiping $122,000 from the value of a typical property—whilst Melbourne faces steeper falls of up to 8 per cent, with median prices expected to dip below the $1 million threshold for the first time in years.

Interest rates and policy changes driving the downturn

The forecasts reflect growing headwinds facing Australian property markets, including the cumulative impact of interest rate rises and recent tax policy adjustments. Canberra's housing market is also tipped to face downward pressure, though forecasts for the capital remain less severe than those for Sydney and Melbourne.

The timing of these predictions comes as the property market shows clear signs of losing momentum after years of sustained gains. National dwelling values have effectively stalled, with May figures showing no growth, whilst Sydney, Melbourne, and Canberra have already entered price correction territory in recent months, according to property tracking firm Cotality.

Domain forecasts Sydney could see the largest house price declines nationally, of up to $122,000, whilst Melbourne's median house price could drop below $1 million.

First-home buyers turning to units as affordable option

Amid the broader market correction, Domain's analysis suggests unit prices are positioned to outperform houses in the coming financial year. This divergence reflects a shift in buyer behaviour, with first-home buyers increasingly pursuing units as a more accessible entry point to the property market as house prices moderate.

The forecast comes at a critical juncture for Australia's housing affordability crisis, as policy-makers grapple with balancing market stability against the need for younger Australians to access property ownership.

Sellers capitalise before market turns

A separate report from Cotality revealed that the median capital gain from home resales reached record levels in the first quarter of 2026, indicating that sellers have been capitalising on years of sustained price growth before market conditions deteriorate further. This suggests a potential acceleration in listings before prices compress, particularly in Sydney and Melbourne where vendors have accumulated the largest paper gains.

This article is based on reporting from ABC News.