REA Group Foresees Deeper Market Correction and Two-Speed Market

Australia’s housing market may still have further to fall as higher interest rates and recent tax policy changes continue to weigh on buyer demand. REA Group CEO Cameron McIntyre has highlighted the cumulative pressure building across the market, with households facing reduced borrowing capacity while investors reassess the attractiveness of property under the new tax settings.

The latest market data support that more cautious outlook. Australian home prices have been falling for several months, with Sydney and Melbourne among the markets most affected by weaker demand. Higher mortgage rates are making it more difficult for buyers to borrow at previous levels, while changes to negative gearing and capital gains tax treatment are also influencing investor behaviour.

One of the more important features of the current cycle is the emergence of what can be described as a “two-speed market”. Conditions are not moving in the same direction everywhere. Sydney and Melbourne have experienced weaker price growth, reduced buyer momentum and softer activity, while some smaller capitals and regional markets have remained comparatively more resilient.

Listings are also playing an important role. In markets where fewer owners choose to sell, reduced supply can help place a floor under prices even when buyer demand is weak. In other areas, if listings rise while borrowing capacity remains constrained, buyers can gain significantly more choice and sellers may face greater competition.

For Melbourne’s western growth corridor, this uneven environment means local market conditions should be assessed carefully rather than relying on national averages. A suburb with strong population growth, transport access and affordable housing may perform very differently from a higher-priced part of Melbourne that is more exposed to reduced borrowing capacity.

Buyers in Melbourne’s west may find that softer demand creates more opportunities to negotiate. Properties that remain on the market for longer can give purchasers additional time to review comparable sales, arrange finance and negotiate with vendors rather than competing in a rapidly rising market.

This can be especially important for first-home buyers. As borrowing limits fall, affordable parts of Melbourne’s west may attract buyers who have been priced out of established inner and middle-ring suburbs. That could help support demand for lower-priced homes, townhouses and units even while the broader metropolitan market remains under pressure.

For investors, however, the current two-speed market requires a more selective approach. Falling prices alone do not automatically create a strong investment opportunity. Investors should consider local rental demand, vacancy rates, employment access, infrastructure, future housing supply and financing costs before making a decision.

The new tax environment is also likely to affect where investor capital flows. With changes to negative gearing and capital gains tax incentives, established properties may face weaker investor demand, while newly built dwellings could become relatively more attractive. This may create different performance patterns across suburbs depending on the mix of new and established housing.

For sellers in Melbourne’s western growth corridor, the changing market reinforces the importance of realistic pricing. Buyers are becoming more cautious and are generally less willing to stretch their budgets, meaning properties marketed at prices based on previous market peaks may take longer to sell.

At the same time, the market is not uniformly weak. Well-located, affordable and well-presented properties can still attract strong interest, particularly when supply is limited. This is why local conditions matter more than broad national headlines.

Overall, the current housing market appears increasingly fragmented. Sydney and Melbourne remain under pressure, while other markets are proving more resilient. For buyers, sellers and investors in Melbourne’s western growth corridor, understanding local supply, affordability and buyer demand will be increasingly important as the broader market continues to adjust.