Shock as big four bank doubles housing crash forecast

Westpac issued its housing market update Friday.

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One of Australia’s biggest banks has doubled its national housing price crash forecast within the space of just three months, with one capital alone plunging double digits wiping out years of gains.

Westpac’s latest Housing Pulse report released Friday afternoon saw a drastic downgrade in its outlook – flagging national home values will fall 6 per cent this year – which is double its previous -3 per cent drop prediction made in June.

Historically low listings are what’s standing in the way of a complete market crash.

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There will be more to come though, with the bank now expecting a total peak-to-trough national price drop of 7.3 per cent – a figure that matches the severe downturn seen during the 2022 rate-hiking cycle.

Westpac head of Australian macro-forecasting Matthew Hassan warned the housing market was in a highly fragile phase now as the shock of higher borrowing costs hits slowing buyer demand.

“Markets were already at risk of hitting an ‘air pocket’ as the downdraft from rate rises combined with heightened uncertainty,” the report said. “A steeper drop in activity could see ‘thin’ trading conditions, raising the risk of more volatile and weaker price outcomes and an air of panic.”

Historically low on-market listings are what is holding back a complete market crash, with Westpac warning buyer demand will not return until interest rate hikes are completely off the table.

The bank is also projecting total sales volumes will plummet by 24 per cent compared to its previous 20 per cent estimate.

How Westpac sees the housing picture though to next year.

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Its updated state-by-state breakdown showed the two largest property markets bearing the brunt of the downturn, with three years of price gains set to be wiped out in Sydney, predicting it will see a double-digit 10 per cent peak-to-trough plunge.

The areas set to lead the collapse in the New South Wales capital are top-tier houses, which have already dropped 9.5 per cent over the past year – with more to come.

Westpac tipped Melbourne will see six year of price growth erased, tipping it for an 8 per cent drop that would take it back to 2021 levels.

Brisbane is expected to hold but slow abruptly to a 2 per cent gain thanks to its hot start to 2026 and total market listings jump of nearly 30 per cent since May.

Perth is set to ease as well to a 3 per cent gain after four consecutive monthly price declines. The sheer lack of property supply is keeping prices from dropping further there.

Adelaide is also forecast to see a 3 per cent gain despite investor activity pulling back rapidly across the state.