Sydney homeowners set for largest fall in prices in 40 years – why Melbourne is faring even worse
Sydney homeowners are facing what analysts warn could be the largest house price correction in 40 years, with the median house price falling for six consecutive months. Higher interest rates have pushed mortgage costs to among the highest in Australia, squeezing affordability and driving some buyers out of the market, while a potential Reserve Bank rate rise in November looms as a further threat to prices. Melbourne is faring even worse, with values declining for a tenth straight month, weighed down by increased housing supply, the lingering effects of Covid lockdowns, and federal and state tax changes that have dampened investor demand.
Sydney's median house price has dropped $87,000 since November, a 5.8 per cent fall from $1.632 million to $1.545 million, according to Realestate.com.au figures, while Melbourne has lost almost $65,000 off the value of a typical home. Experts point to Federal Budget changes restricting negative gearing to new builds and altering capital gains tax rules, due to take effect from July 2027, as having already dented investor confidence and search activity. Melbourne, which has recorded just 37 per cent growth in house values since 2016 compared with more than double in Brisbane, Adelaide, Hobart and Perth, is described as the worst-performing capital city over the past decade.
- Sydney house prices set for worst fall in 40 years amid rate pressures
- Melbourne prices fall for 10th straight month, underperforming other cities
- Tax and negative gearing changes blamed for weakening investor demand
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Those who welcome the correction argue that years of double-digit price growth had locked younger buyers and renters out of the market, particularly in Sydney and Melbourne, and that a period of falling values is a necessary, if painful, rebalancing. They see the Federal Budget's tightening of negative gearing to new builds and its capital gains tax changes as a fair and overdue reform, arguing that housing should function primarily as shelter rather than as a tax-advantaged speculative asset. From this perspective, higher interest rates, while uncomfortable, are doing their job by cooling an overheated market and improving the prospects of first-home buyers who have long struggled against investor competition.
The case against
Homeowners, investors and those wary of the changes counter that a correction of this scale carries real risks: falling equity can trap owners in negative territory, unsettle household finances, and dent the broader economy through reduced consumer confidence and construction activity. They argue the negative gearing and capital gains tax changes are discouraging precisely the investors who supply much-needed rental stock, worsening Melbourne's already weak decade of growth and potentially pushing rents higher even as house prices fall. On this view, a further Reserve Bank rate rise in November would compound an already sharp downturn, penalising existing owners and renters alike for policy and monetary settings they had no part in shaping.