Westpac Downgrades Australian House Price Forecasts for 2026

Westpac has revised its housing market outlook, warning that Australia’s current downturn is likely to be deeper than previously expected. The major bank now forecasts a national peak-to-trough decline of 7.3% in dwelling prices, with Sydney expected to experience the sharpest fall at around 10% and Melbourne projected to decline by about 8%. This updated outlook reflects a more intense correction than Westpac had forecast earlier in the year and suggests the housing market may remain under pressure for longer than many had hoped.

The revised forecast highlights the continued impact of higher interest rates, weaker sentiment and reduced borrowing capacity across the market. As mortgage costs rise, buyers are finding it harder to borrow at the levels they could previously manage, which is reducing competition and placing downward pressure on prices. At the same time, softer consumer confidence and uncertainty around the economic outlook are making many households more cautious about entering the market quickly.

For Melbourne, the forecast is particularly relevant. An 8% decline would reinforce the city’s position as one of the weaker-performing capital city markets during the current correction. While this may sound concerning at first, it also signals a changing environment in which buyers may have more time, more choice and greater negotiating power than they did during stronger market conditions.

This could create potential opportunities for patient buyers in Melbourne’s western growth corridor. As competition eases and sellers become more realistic, well-prepared purchasers may be better placed to negotiate on price, settlement terms or property inclusions. For first-home buyers and upgraders who have secure finance and a clear long-term plan, a softer market can create a more accessible entry point than was available when prices were rising more rapidly.

However, lower prices do not automatically remove affordability challenges. Higher interest rates still reduce borrowing power and increase mortgage repayments, meaning buyers need to look carefully at their financial position rather than focusing only on the purchase price. Strong budgeting, a realistic deposit and a financial buffer remain important, particularly if the market continues to adjust further.

For investors, Westpac’s forecast is a signal to proceed with caution. While softer prices may present attractive buying opportunities, the possibility of further short-term declines means investment decisions should be based on fundamentals rather than expectations of quick capital growth. Rental demand, vacancy rates, holding costs, infrastructure, population growth and suburb-level supply conditions should all be considered carefully before committing to a purchase.

The outlook also suggests that the market may move through a prolonged adjustment phase rather than a short and sharp correction. That means sellers in Melbourne’s western growth corridor may need to align their expectations more closely with present market conditions. Properties that are priced realistically and presented well are likely to be better positioned than those launched with price expectations based on previous peak values.

Although the revised forecast points to a more difficult period for the housing market, it does not necessarily imply widespread distress. Supply remains relatively tight in many areas, and a lack of forced selling could help prevent an even deeper downturn. Even so, the message from Westpac is clear: the correction is proving stronger than expected, and all market participants should be prepared for a period of continued price adjustment.

For buyers in Melbourne’s western growth corridor, that may mean more favourable conditions and improved choice. For investors and sellers, it is a reminder that careful planning, realistic pricing and a long-term perspective are becoming increasingly important in a more cautious and uncertain property market.