At an inner-Sydney auction on Monday the room felt quieter than usual as bids thinned and prices slipped. ANZ Research on June 15, 2026 cut its capital-city house price forecast to a 2.1 percent fall in calendar 2026, a near 5 percentage-point swing from its prior call for a 2.8 percent rise. NAB issued a similar downgrade this week, now expecting roughly a 2 percent drop in capital-city values for 2026 after previously forecasting a 2 percent rise. The banks said a mix of recent Reserve Bank rate increases, heightened geopolitical uncertainty and the May federal Budget changes to investor tax settings are already altering investor behaviour and bank balance sheets.

Sunlight fell across a foyer as an auctioneer called for final offers, and agents exchanged worried looks as the highest bids came in below reserve. That scene is playing out in cities from Sydney to Melbourne and helps explain why ANZ now expects Sydney values to fall about 8.4 percent in 2026 and Melbourne to fall about 7.7 percent, followed by a further 3.3 percent decline across capital cities in 2027.

Why the forecasts shifted

ANZ published the revision on June 15, 2026, saying the downgrade represents a near 5 percentage-point reversal from its earlier view that capital-city prices would rise 2.8 percent this year. NAB has moved in step, trimming its outlook so capital-city prices are likely to fall roughly 2 percent in 2026 after an earlier forecast of a 2 percent rise. Both banks pointed to the same mix of forces: a fresh bout of Reserve Bank tightening, greater geopolitical uncertainty and the May federal Budget's proposed curbs on negative gearing and the capital gains tax discount.

The Budget already appears to be changing behaviour. Carolyn McCann, head of Westpac's consumer bank, said applications for housing investor loans dropped 20 percent in the three weeks after the May Budget. Auction clearance rates have slipped below 50 percent, a level ANZ described as historically tied to notable market weakness, and listings and days on market have risen in many suburbs. ANZ also warned that weaker investor demand will push investor credit growth into negative territory.

Mastheads

At a suburban sales office on Monday afternoon mortgage brokers were already pacing their books, mindful that slower investor activity trims higher-margin lending. Citi's research team cut profit forecasts for the big four banks, warning reduced investor activity and a broader slowdown will drag mortgage credit growth lower over the following 12 to 18 months. ANZ models a similar trajectory for housing credit growth, easing in coming years as investor borrowing retreats.

The direct exposures are clear. Households will feel weaker price growth in their wealth and home-equity cushions. Property investors face lower capital gains prospects and tighter returns, especially in one- and two-bedroom apartments where ANZ said investor demand will fall more sharply than owner-occupied housing. Banks can see lending growth slow and margins compress as higher-margin investor loans decline.

Developers and listed property platforms face weaker sales and lower collateral values that could lift loan-to-value ratios across mortgage books.

Several market participants noted that undersupply and constrained construction capacity will limit how deep or long any slump might be. ANZ's models assume rate cuts late in 2027 and supply constraints will support a recovery from 2028, but until then the transition is likely to be bumpy.

Commonwealth Bank economists put numbers on the Budget's bite, saying the proposed tax changes would reduce annual price growth by the end of 2026. That implies lower dwelling price growth to December 2026 than earlier projections. NAB's view that Sydney and Melbourne will see the largest downside underlines how concentrated the risk is in those two markets and how much they will drive an overall slowdown across the eight capitals.

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The next policy milestone is the government’s planned change to negative gearing and the capital gains tax discount, scheduled to take effect on July 1, 2027. Originally reported by Sydney Morning Herald.

This article was created with AI assistance.