House prices fall in every Australian capital city for first time in 15 years

Domain data shows Sydney at two-year low while Melbourne sits just above $1m as Morgan Stanley forecasts market bottom in 2027

By LineZotpaper

Published22 October 2026

Updated22 October 2026

Read Time2 min

Sources2 outlets

House prices fell across every Australian capital city in the September quarter for the first time in 15 years and only the second time on record, according to Domain's September Quarter 2026 House Price report, with higher interest rates, cost-of-living pressures and housing investment tax changes driving the downturn.

The September quarter produced the broadest decline in Australian house prices since Domain records began, with houses and units falling in every capital city. Sydney house prices dropped 4.7% to a two-year low of $1.66m, while Melbourne fell 3.3% for a third consecutive quarter, leaving its median at $1.014m after its largest quarterly fall in four years.

Perth recorded the sharpest decline, with house prices falling a record 4.7%, and Brisbane and Adelaide also posted their steepest quarterly falls on record.

Domain's chief residential economist, Nicola Powell, said the downturn had broadened geographically and across property types. "Homes are taking longer to sell, there is greater scope to negotiate and sellers are having to be more realistic about price expectations," she said.

Powell attributed the falls to higher interest rates, persistent cost-of-living pressures and changes to housing investment tax policy, with reduced borrowing capacity also stifling sales. "What this has really layered is weak sentiment across buyers in particular," she said. Powell noted that Melbourne could close the year with a median house price below $1m.

The weakening market has opened up opportunities for prospective buyers, with several capitals at their highest supply levels in years. "We are in a buyer's market and many of our capital cities have got the highest levels of supply that they've seen in a number of years," Powell said. "For buyers with secure finances and the capacity to transact, that creates opportunities that have been difficult to find in recent years."

Powell said prices could keep falling for months, and that confidence was unlikely to return until the Reserve Bank cuts interest rates or starts discussing a cut, a prospect she placed in the latter part of next year. Morgan Stanley economists agreed, predicting the market will bottom out in the second half of 2027, with the downturn running as deep as 15% from peak to trough.

Analysis

Why This Matters

The first simultaneous fall in all capital city house prices in 15 years signals a major shift in Australia's housing market after years of growth.
Falling prices affect homeowners and investors through reduced equity, while improving affordability and choice for buyers with secure finances.
Whether Melbourne's median house price drops below $1m would be a closely watched psychological milestone, and the timing of any interest rate cut will shape how far prices fall.

Background

Australian capital city house prices have climbed strongly over the past decade, making housing affordability a central national issue. The current downturn is being driven by higher interest rates, which raise mortgage costs and reduce borrowing capacity, along with persistent cost-of-living pressure and changes to tax settings for housing investors. With supply now rising in many capitals, the market has shifted from seller conditions to a buyer's market, and economists are divided on how long the correction will last.

Key Perspectives

Domain: The data provider says the downturn is broad-based, affecting houses and units, and that weak buyer sentiment is the key factor. It sees no sustained recovery until the Reserve Bank signals rate cuts, which it expects late next year. Morgan Stanley: The investment bank forecasts the downturn will bottom out in the second half of 2027, with prices falling up to 15% from their peak, a deeper and longer correction than many expect. Buyers and sellers: Buyers with secure finances are gaining negotiating power and access to the highest supply levels in years, while sellers face longer selling times and must lower price expectations to transact.

What to Watch

Whether Melbourne's median house price falls below $1m by the end of the year.
Any shift in Reserve Bank language toward discussing interest rate cuts.
The next Domain quarterly report for signs that the decline is slowing or accelerating in Perth, Brisbane and Adelaide.
Whether the tax policy changes cited by Domain feed further weakness in investor demand.

Sources

House prices falling in every Australian capital city for first time in 15 years · Australia news | The Guardian
House prices falling in every Australian capital city for first time in 15 years · World news | The Guardian

Checked

12 claims in this story checked against 1 source: 9 supported.

Show each claim

SupportedHouse prices fell in every Australian capital city for the first time in 15 years and only the second time on record.Australia news | The Guardian: “House prices are falling across every capital city for the first time in 15 years and the second time on record, according to figures from Domain’s September Quarter 2026 House Price report.”
Not in the sourcesThe September quarter was the broadest decline in Australian house prices since Domain records began.Australia news | The Guardian: ““Geographically, the downturn has broadened, but also across property types with houses and units also falling,” Domain’s chief residential economist, Nicola Powell, said.”
SupportedSydney house prices fell 4.7% to a two-year low of $1.66m.Australia news | The Guardian: “House prices in Sydney are at a two-year low after falling 4.7% in the September quarter, to $1.66m.”
SupportedMelbourne house prices fell 3.3% for a third consecutive quarter to $1.014m, after their largest quarterly fall in four years.Australia news | The Guardian: “House prices in Melbourne have fallen for the third consecutive quarter, slumping 3.3% in the September quarter, but remains in the million-dollar club, marginally, with a media price of $1.014m after experiencing its largest quarterly house price fall in four years.”
SupportedPerth had a record 4.7% house-price fall, while Brisbane and Adelaide had their steepest quarterly house-price falls on record.Australia news | The Guardian: “Perth recorded the sharpest drop, with house prices falling a record 4.7%, while Brisbane and Adelaide also logged their steepest quarterly house price falls on record.”
SupportedPowell said, “Homes are taking longer to sell, there is greater scope to negotiate and sellers are having to be more realistic about price expectations.”Australia news | The Guardian: ““Homes are taking longer to sell, there is greater scope to negotiate and sellers are having to be more realistic about price expectations.””
SupportedPowell said, “What this has really layered is weak sentiment across buyers in particular.”Australia news | The Guardian: ““What this has really layered is weak sentiment across buyers in particular,” she said.”
SupportedPowell said, “We are in a buyer's market and many of our capital cities have got the highest levels of supply that they've seen in a number of years.”Australia news | The Guardian: ““We are in a buyer’s market and many of our capital cities have got the highest levels of supply that they’ve seen in a number of years,” Powell said.”
SupportedPowell said, “For buyers with secure finances and the capacity to transact, that creates opportunities that have been difficult to find in recent years.”Australia news | The Guardian: ““For buyers with secure finances and the capacity to transact, that creates opportunities that have been difficult to find in recent years.””
Partly supportedPowell attributed the falls to higher interest rates, cost-of-living pressures, housing investment tax changes and reduced borrowing capacity.Australia news | The Guardian: “Higher interest rates, persistent cost-of-living pressures and changes to housing investment tax policy were driving the reductions, Powell said. “Reduced borrowing capacity is also stifling sales, the data suggests.””
Partly supportedPowell said confidence was unlikely to return until the Reserve Bank cut rates or started discussing a cut, which she placed in the latter part of next year.Australia news | The Guardian: ““Something needs to shift to alter the confidence to transact and I cannot envisage the confidence changing until we see an interest rate cut or even the discussion that interest rate reductions are on the horizon,” she said. “And ultimately that prospect is in the latter part of next year.””
SupportedMorgan Stanley economists forecast that the market would bottom out in the second half of 2027, with the downturn as deep as 15% from peak to trough.Australia news | The Guardian: “Morgan Stanley economists agreed, predicting the market will bottom out in the second half of 2027. They expect the downturn to run as deep as 15% from peak to trough.”