Australia’s property market may be approaching a significant turning point. After years of strong price growth, rising interest rates, pressure on household budgets and weaker buyer confidence are creating uncertainty across the housing sector.

The Commonwealth Bank of Australia (CBA) has warned of a potentially record-breaking housing downturn, with property values forecast to fall across the country’s capital cities. If the predicted declines eventuate, homeowners, property investors and businesses connected to the construction and property industries could face considerable financial pressure.

In this episode of The CEO Breakdown, John Saade of Latitude Accountants examines CBA’s warning and explores how far Australian property prices could fall. The discussion looks at the factors driving the downturn, the impact of higher interest rates and what these changing conditions could mean for homeowners, property investors and the wider Australian economy.

For Australian households, a fall in property prices is not simply a change in the value of an asset. It can affect mortgage equity, borrowing capacity, investment decisions and long-term financial plans. Business owners may also feel the effects through weaker consumer spending and reduced activity in the property market.

Understanding these risks and reviewing your financial position can help you prepare for different market conditions.

Why Is CBA Warning of a Record Housing Downturn?

CBA’s revised forecast points to a national dwelling price decline of approximately 14% from peak to trough. The bank says this could become the largest fall in the history of its national monthly price series, which spans around 45 years.

The warning reflects a housing market that has weakened faster and more broadly than economists previously expected. In October 2026, national dwelling values fell by 1.2%, marking the seventh consecutive monthly decline. Values were already around 6.7% below their March peak, according to CBA’s analysis.

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Several factors are contributing to the pressure:

• Higher interest rates: More expensive mortgages reduce borrowing capacity and leave households with less disposable income.
• Weaker buyer confidence: Uncertainty about interest rates and the economy can encourage buyers to delay property purchases.
• Reduced market activity: Lower sales volumes and auction clearance rates suggest fewer buyers are willing or able to commit.
• Cost-of-living pressures: Higher everyday expenses make it harder for households to save deposits and manage mortgage repayments.
• Changing market conditions: Cities that experienced particularly strong price growth may be more exposed to a correction.

A housing downturn does not happen for just one reason. These pressures can reinforce one another, making it harder for property markets to recover quickly.

How Far Could Australian House Prices Fall?

CBA’s latest forecast suggests every major mainland capital city could fall significantly from its recent market peak.

The bank’s projected peak-to-trough falls are:

Source: Commonwealth Bank housing market forecast, November 2026. These are forecasts, not confirmed future outcomes.

Brisbane and Perth stand out, with projected declines of 18%. Both cities had experienced strong price growth in the preceding period, but that momentum has since reversed.

Sydney is also facing a substantial correction, with CBA forecasting a 16% fall from peak to trough. Melbourne and Adelaide are forecast to decline by approximately 13%.

It is important to understand what these figures mean. A peak-to-trough forecast measures the potential decline from the market’s highest point to its projected lowest point. It does not mean every property will lose the same percentage of its value. Individual results will depend on location, property type, demand, supply and local economic conditions.

How Are Higher Interest Rates Affecting the Property Market?

Interest rates are one of the major factors influencing CBA’s outlook.

In November 2026, the Reserve Bank of Australia (RBA) increased the official cash rate by 0.25 percentage points to 4.85%. Higher rates can make home loans and other forms of borrowing more expensive, placing additional pressure on households already managing increased living costs.

For existing homeowners, higher repayments can reduce the amount of money available for savings, household expenses and other financial commitments.

For prospective buyers, increased borrowing costs can reduce how much they are able to borrow. Some may decide to postpone purchasing, while others may look for less expensive properties.

Businesses can also feel the effects. Higher interest expenses may affect commercial loans, property investments and operating costs. At the same time, households with less disposable income may reduce spending, potentially affecting businesses that rely on consumer demand.

CBA has also indicated that the higher interest rate outlook has contributed to its weaker property forecast. Its economists expect national dwelling prices to decline further before potentially stabilising in the second half of 2027. However, the bank does not expect a significant recovery at that stage.

What Does Falling Property Value Mean for Homeowners?

A decline in property prices does not automatically mean homeowners are in financial trouble. However, it can change their financial position, particularly if they purchased recently or borrowed a substantial amount to buy their property.

One important consideration is home equity.

Equity is the difference between a property’s current market value and the outstanding mortgage balance. When property values fall, the owner’s equity may decrease even if they continue making regular repayments.

For example, consider a homeowner who purchased a property for $800,000 with a $700,000 mortgage.

If the property’s value falls by 14%, its estimated value would become $688,000. If the outstanding loan remained at $700,000, the owner would have negative equity of approximately $12,000.

This is a simplified example. Actual mortgage balances change as repayments are made, and property values will vary between locations and individual properties.

Homeowners should pay particular attention to:

• Mortgage repayments: Can the household comfortably manage repayments if interest rates remain elevated?
• Available equity: Has the property’s reduced value affected refinancing or borrowing options?
• Selling decisions: Would selling during a downturn leave insufficient funds to repay the outstanding mortgage and associated costs?
• Long-term plans: Does the current financial position still support plans to renovate, invest or purchase another property?

Understanding these factors can help homeowners make decisions based on their actual financial circumstances rather than reacting to market headlines.

What Should Property Investors Consider During a Downturn?

Property investors may face a different set of challenges when values decline. A lower property valuation can affect their overall investment position, borrowing capacity and potential returns.

Investors should review more than the property’s market value. Rental income, loan repayments, maintenance, insurance, council rates and other ownership expenses all contribute to the investment’s financial performance.

Here are several areas worth reviewing:

1. Cash flow: Check whether rental income is sufficient to cover ongoing property expenses and loan commitments.
2. Interest expenses: Review how changes in borrowing costs affect the property’s overall return.
3. Tax obligations: Keep accurate records of rental income, deductible expenses and other relevant costs.
4. Investment performance: Assess whether the property continues to meet your financial objectives.
5. Financial reserves: Maintain an appropriate cash buffer for vacancies, repairs and unexpected expenses.

Selling an investment property during a downturn may not always be the best decision. Equally, holding onto an investment without reviewing its financial performance can create unnecessary pressure.

The right approach depends on the investor’s circumstances, cash flow, tax position and long-term strategy.

How Can Australians Prepare for a Housing Market Decline?

No one can guarantee how far property prices will fall or when the market will recover. However, households and businesses can take practical steps to strengthen their financial position.

Start by reviewing your current income, expenses, debts and available savings. Understanding where your money goes can help identify areas where adjustments may be necessary.

Consider these steps:

• Review your budget: Identify expenses that can be reduced without affecting essential needs.
• Monitor your debt: Understand your loan balances, interest rates and repayment commitments.
• Build an emergency fund: Set aside accessible savings for unexpected expenses or changes in income.
• Review property investments: Assess rental income, expenses and ongoing financial commitments.
• Keep financial records organised: Accurate records make it easier to understand your position and meet tax obligations.
• Seek professional advice: Speak with qualified professionals before making major financial, investment or tax decisions.

For business owners, it is also important to monitor cash flow, review operating costs and prepare realistic financial forecasts. A weaker property market can affect businesses beyond real estate, particularly when households become more cautious about spending.

What Could Happen to the Property Market in 2027?

CBA expects the housing market to stabilise during the second half of 2027, supported by lower property prices, improved rental yields, ongoing housing supply constraints and the possibility of interest rate relief.

However, stabilisation does not necessarily mean property prices will immediately return to previous highs. CBA has indicated that it does not expect a material recovery in the initial stabilisation period, and the outlook remains uncertain.

The actual outcome will depend on several factors, including inflation, interest rate decisions, employment conditions, household confidence and housing supply.

For buyers, lower prices could eventually improve affordability. For existing homeowners and investors, the priority may be maintaining manageable debt levels and ensuring their finances can withstand a prolonged period of uncertainty.

Ultimately, property market forecasts are useful indicators, but they should not replace individual financial planning.

Frequently Asked Questions About Australia’s Housing Market

Is Australia heading for a record property market decline?

CBA forecasts a national dwelling price decline of around 14% from peak to trough. If realised, this would be the largest fall in its approximately 45-year national monthly price series.

Which Australian cities could experience the biggest house price falls?

CBA forecasts Brisbane and Perth could experience the largest declines at approximately 18%, followed by Sydney at 16%, and Melbourne and Adelaide at 13% each.

Will Australian house prices recover in 2027?

CBA expects the market to stabilise in the second half of 2027. However, this is a forecast, and the bank does not anticipate a significant recovery during the initial stabilisation period.

What happens if my property value falls below my mortgage?

You could enter negative equity, meaning your outstanding mortgage is greater than your property’s current market value. This can make selling or refinancing more difficult, depending on your circumstances and lender requirements.

Should I sell my investment property during a housing downturn?

Not necessarily. Consider your rental income, mortgage repayments, ongoing expenses, tax position and long-term investment objectives before making a decision. Professional financial and tax advice can help you assess your options.

How can an accountant help during a property market downturn?

An accountant can help review your financial position, assess cash flow, organise investment property records, understand relevant tax obligations and plan for different financial scenarios.

Speak With Latitude Accountants

A changing property market can create uncertainty, but having a clear understanding of your financial position can help you make more informed decisions.

At Latitude Accountants, John Saade and the team work with Australian individuals and business owners to provide practical accounting, tax and business advisory support. Whether you need help reviewing your finances, managing tax obligations or planning for changing economic conditions, our team is here to help.

Get in touch with Latitude Accountants to discuss your financial needs.

📍 Sydney Olympic Park | Marrickville | Melbourne | Loxton | Adelaide
📞 1300 706 597
📧 info@latitudeaccountants.com.au

Disclaimer

This article is provided for general informational purposes only and should not be considered financial, tax, accounting, legal, property or investment advice. Property market forecasts are estimates and are subject to change. Actual property prices and market conditions may differ from the projections discussed. Readers should seek independent professional advice before making financial, property or investment decisions based on their individual circumstances.