Westpac sees the run into year-end shaping as a particularly nervy one for housing markets. They have increased their peak-to trough price decline

This is from Westpac's quarterly housing market report here.

Housing market developments have continued to come thick and fast over the last few months. One by-product of this has been a delay to our latest report which has required a few refreshes. The bottom line is that the correction that began in early 2026 has broadened and intensified.

While there are some signs, including from our sentiment-based indicators, that turnover is starting to stabilise, it is at a weak level with prices still moving lower and the near term outlook challenging.

A big part of the challenge now sits with the wider economic and financial backdrop. The economy held up better than expected in the June quarter with consumer spending soft rather than weak and income gains supported by a business investment upswing, led by data centres and renewable energy projects, that is gaining momentum.

Meanwhile inflation remains a pressing concern.

Underlying measures are still above the RBA’s 2-3% target band and oil prices are again pushing above US$100/bbl following another deterioration in the Middle East situation. The combination is widely expected to see the RBA Board deliver another rate rise at its September meeting with a clear risk of a further increase.

The timing could not be much worse for housing.

As we warned in our last report, markets were already at risk of hitting an ‘air pocket’ as the downdraft from rate rises combined with heightened uncertainty about the impact of housing-related tax policy changes. A steeper drop in activity could see ‘thin’ trading conditions, raising the risk of more volatile and weaker price outcomes and an air of panic. 

Our Housing Pulse shows things are delicately poised. The Westpac Consumer Housing Sentiment Index is shading lower, suggesting the pull-back in turnover is tilting towards a marginally bigger 25% decline vs our initial forecast of 20%. However, consumers’ house price expectations have stabilised at levels that are below average but not at the outright negative reads seen during previous corrections.

There are other factors that should also limit the correction. Selling pressure is minimal and both the physical and on-market supply/demand balance remains relatively tight.

Overall, we have revised down our forecast for prices which are now expected to see a 7.3% decline peak-to-trough, similar to the correction in 2022. The run into year-end is shaping as a particularly nervy one for housing markets

Losing altitude

– Our last report found housing markets entering a more uncertain period as a re-tightening in interest rates combined with a global energy shock and major tax policy changes. The combined effect was seeing a significant weakening in both markets and housing-related sentiment. Three months on and the downturn has deepened and broadened. While there have been some tentative signs of stabilisation, particularly around sales volumes (see p6), momentum remains firmly negative and is likely to remain so with a further rise in interest rates now expected in coming months.

– Nationally, the initial dip in prices in AprMay has accelerated materially with prices falling 3.8% over the 3mths to Aug (albeit with about 0.6ppts of that seasonal) to be 4.7% below their peak. Annual growth has slowed to 1%yr and is likely to move into negative in Sep (see here for more details).

– The price correction has also broadened. Initial declines centred on the ‘top tier’ segments of the Sydney and Melbourne markets. Those markets are now seeing all price tiers recording declines. Meanwhile, Brisbane, Adelaide and Perth, which were all still recording positive price growth three months ago, are now seeing modest declines as well. Prices are also dipping across most of Australia’s smaller capital cities and regional areas.

– Turnover has weakened materially as well. Revised estimates show quarterly volumes have been declining at a 6%qtr average pace in 2026 and are down 17% from last year’s high to a near 3½yr low. The initial downturn was a little more pronounced in Sydney and Melbourne but is now coming across nearly all major city markets.

– Auction markets are also stressed. These are more reflective of conditions in the ‘top tier’ segments of the Sydney and Melbourne markets that have seen bigger corrections to date. Clearance rates have dropped well below avg to be near the lows seen in 2018-19 (slightly higher in Melbourne). Auction volumes are also down 35% vs a year ago. Pre-auction withdrawals rose sharply in Jun but have moderated again since (see p6).

– Around on-market supply, listings have started to pull back with new listings across the major capital cities over the 3mths to Aug down 8.9% from a peak in Apr. This is the lowest pace for new listings since mid-2023. However, the much sharper pull back in sales means total listings on market are still rising, up 28% since the start of the year (adjusting for seasonality). Current inventory now sits at 3.2 months of sales, a touch below historical averages but up sharply on the 2 months of sales that were on hand late last year.

– Housing-related sentiment has also deteriorated since May although there have been significant differences across particular aspects. 

– The biggest deterioration has been around price expectations. Recall that these were coming from a very high starting point earlier in the year. The Westpac–MI Consumer House Price Expectations Index plunged 27% over the 3mths to Aug following a 13% drop over the previous 3mths but held about steady in Sep. At 110.3, the index is now well below the long run avg of 126. However, it remains comfortably above the 100 level, meaning those expecting prices to rise still outnumber those expecting them to fall. This may well change, but as it stands, the absence of a consensus view that prices will be low in a year’s time will tend to limit rather than add to downside momentum (as it did in 2019, 2020 and 2022).

 – Risk aversion has also spiked. The Westpac Consumer Risk Aversion Index jumped 12.7pts from 47.4 in Mar to 60.1 in Jun, dipping back only slightly to 57.5 in Sep. This compares to the 52yr high of 60.8 recorded 3yrs ago. Responses to the ‘wisest place for savings’ question used to compile this measure show safe options heavily favoured: 65% nominating ‘bank deposits’, ‘pay down debt’ or ‘super’. Only 4.7% nominated ‘real estate’, a record low.

– These moves were partially offset by a less pessimistic take on ‘time to buy’ and easing job loss fears.

– The Westpac–MI ‘time to buy a dwelling’ index posted a big rebound over the 3mths to Aug but was coming from an extremely weak starting point and unwound some of the gain in Sep. The index jumped from 72 in May (close to previous lows) to 95.7 in Aug, moving back to 85.5 in Sep. The volatility reflects both uncertainty about the impact of recent tax policy changes and the outlook for inflation and interest rates (the ‘time to buy’ index typically captures the affordability proposition for owner occupiers). The moves suggest some of the initial uncertainty around tax changes has eased. That said, the Index is still a long way from outright positive and the long run avg of 121.

– Sentiment around jobs recovered from a minor scare earlier in the year, likely linked to the energy crisis and interest rate rises, but has weakened again in Sep. The Westpac–MI Unemployment Expectations Index dropped 12% over the 3mths to Jul, but has backed up 7.3% again since then. At 139.4 the index is above the long-run avg of 129 but not overly high. The latest deterioration has been more pronounced amongst those working in the construction and hospitality sectors.

The full Westpac Housing Pulse report is here which includes details by state and territory.