Major Bank and Real Estate Giant Agree on Continued House Price Falls

Australia’s housing market is expected to remain under pressure into 2027, with both Commonwealth Bank and REA Group pointing to higher interest rates, weaker investor demand and recent housing tax reforms as important forces reshaping the market.

Commonwealth Bank expects the current housing correction to continue through the first half of 2027 before conditions begin to stabilise. Its latest outlook suggests national dwelling prices could start recovering later in the year, but that recovery depends partly on expected interest-rate cuts. If rates remain higher for longer, price growth could remain very subdued.

REA Group’s property outlook is somewhat more optimistic on the timing of the recovery, but it also acknowledges that higher interest rates and reduced investor demand will continue to weigh on prices. Its June outlook expected softer or falling prices through the second half of 2026 before a return to growth into 2027.

A major factor behind the weaker outlook is the cumulative effect of the Reserve Bank’s rate increases. Higher mortgage costs have reduced borrowing capacity and made many buyers more cautious, while existing homeowners face larger repayments and lower disposable income.

Recent Federal Budget changes have added another layer of uncertainty. Negative gearing will be restricted to new residential builds from July 2027, while the existing 50% capital gains tax discount will be replaced by indexation and a minimum tax on real capital gains. Commonwealth Bank estimates these reforms will reduce the attractiveness of established investment properties and place additional downward pressure on prices over time.

For Melbourne’s western growth corridor, this suggests the current correction may not be over yet. Buyers could continue to benefit from softer competition, longer selling times and greater negotiating power, particularly where vendors need to adjust expectations to match current market conditions.

However, buyers should be careful about assuming that waiting will always produce a better outcome. Property prices may fall further, but borrowing capacity can also decline if interest rates remain high. A lower purchase price may therefore be partly offset by more expensive finance.

For sellers, the market may remain challenging for some time. Homes that are priced above current buyer expectations could take longer to sell, while properties that are well presented and realistically priced are likely to perform better in a cautious environment.

Investors in Melbourne’s west should also pay close attention to the changing tax environment. Established properties may face weaker investor demand, while new dwellings could become relatively more attractive because negative gearing will continue to apply to new builds under the new rules.

This could create different performance patterns across Melbourne’s western growth corridor. New estates and growth areas may benefit from stronger investor interest in new housing, while established suburbs could experience more subdued demand from investors.

At the same time, local fundamentals will remain important. Population growth, transport access, employment, rental demand, infrastructure and the amount of new housing supply will continue to influence how individual suburbs perform.

Overall, the outlook from Commonwealth Bank and REA Group points to a property market that may remain soft for longer than many buyers and sellers initially expected. For Melbourne’s western growth corridor, this could create opportunities for patient and well-prepared buyers, but the strongest decisions will come from understanding local conditions rather than relying solely on national forecasts.