ANZ warns Sydney house prices face sharpest slump since 1983

Homeowners in Australia's largest property market are facing their most severe downturn in decades, with major financial institutions warning of steep declines driven by tighter monetary policy and recent tax changes. According to The Nightly reporting, ANZ expects Sydney house prices to plunge by 14.5 per cent from peak to trough. This projected drop would mark the worst slump for the city since 1983, when the broader economy was gripped by a year-long recession.

The revised outlook points to a combination of restrictive interest rates, extreme affordability constraints, and federal tax policies. The federal government's budget changes have targeted investment properties, restricting negative gearing for exchanges made after budget night to brand new properties starting next July. Additionally, the 50 per cent capital gains tax discount was replaced with indexation and a minimum 30 per cent tax.

ANZ economists Madeline Dunk and Adam Boyton noted that the market is slowing sooner than they had expected. Auction clearance rates have stayed soft, coming in below 50 per cent for the past 10 weeks across the capitals.

Unlike previous downturns where expensive suburbs took the heaviest initial hits, analysts suggest outer suburbs and investor-heavy pockets will bear a major brunt this time. Investors traditionally gravitate toward more affordable areas and specific asset types.

"One of the differences, potentially, this time around is just the investor story and the likely pullback in investor activity, investors aren’t generally in that top quartile,"

Madeline Dunk, Economist, via The Nightly

Dunk added that properties favored by investors, such as one-bedroom apartments or houses in western suburbs dominated by investment activity, are projected to underperform.

Capital city forecasts at a glance

• Sydney: Peak-to-trough fall of 14.5 per cent, following a peak where median values reached $1.5 million according to The Sydney Morning Herald, or $1.6 million as reported by The Nightly using Cotality data.
• Melbourne: Expected to decline by 12.8 per cent from its peak, with mid-point values resting around $936,528.
• Brisbane: Projected to drop by 7.9 per cent.
• Adelaide: Forecasted to fall by 9.8 per cent due to heightened exposure from affordability limits and supply and demand being more in balance.
• Perth: Anticipated to drop by 5.2 per cent from this year's peak.

Overall, capital city prices are expected to drop by 4.3 per cent this year alone, followed by a 3.4 per cent drop next year. Combined, the 10.6 per cent decline from this year’s peak means the worst downturn since the early 1980s.

Despite the gloomy housing outlook, broader financial stability concerns remain contained. According to The Sydney Morning Herald, Reserve Bank of Australia Governor Michele Bullock stated during a press conference that even a 20 per cent property price slump wouldn’t spark a crisis.

"If property prices fell by 20 per cent, still only about 5 per cent of households would be in negative equity,"

Michele Bullock, Governor, via The Sydney Morning Herald

Bullock acknowledged that while such circumstances would be awful for the homeowners affected, financial institutions do not face a risk because they are very well capitalised. The RBA board kept its official cash rate steady at 4.35 per cent, though Bullock warned that the bank is willing to keep raising interest rates to curb inflation.

Treasurer Jim Chalmers told parliament that the Reserve Bank’s decision to keep interest rates steady would come as a relief to Australians with a mortgage, pointing to inflation coming in well under the Reserve Bank and Treasury forecasts.

What to watch next

Market observers and mortgage holders will monitor upcoming inflation prints, employment data, and auction clearance rates to determine if the RBA follows through on threats of additional rate hikes later in the year. ANZ is expecting home prices to bottom out in mid-2027 before the Reserve Bank cuts interest rates again.