Expensive Homes Are Falling Faster: What Australia’s Property Downturn Means for Buyers

Australia's property downturn is not affecting every home equally.

The latest September housing data shows that the country's most expensive properties are experiencing some of the largest falls, particularly in Sydney and Melbourne.

According to Cotality, upper-quartile house values in Sydney are now 10.7% below their cyclical peak, while Melbourne's upper-quartile houses have fallen 10.5%. (Cotality)

By comparison, the lower end of those markets has been significantly more resilient.

In Sydney, the gap between the decline in upper and lower-quartile houses has reached 5.3 percentage points. In Melbourne, the difference is even larger at 6.6 percentage points. (Cotality)

Cotality's figures indicate Sydney's lower-quartile houses are down around 5.4% from peak, compared with 10.7% at the top end. In Melbourne, lower-quartile houses have fallen roughly 3.9%, compared with 10.5% for premium properties. (Cotality)

That creates a very different housing market depending on what someone is trying to buy.

And for prospective borrowers, there is an important lesson:

A falling property price does not necessarily mean the property has become easier to finance.

The Numbers Behind the Two-Speed Property Downturn

Cotality says the median value of an upper-quartile Sydney house is around $2.1 million, while Melbourne's equivalent segment is around $1.2 million. (ABC News)

The premium end is therefore carrying a disproportionately large share of the correction.

Why Are Expensive Homes Falling Faster?

There is no single reason.

Australia's current downturn reflects a combination of higher interest rates, reduced borrowing capacity, weaker buyer confidence, more properties available for sale and changing investor behaviour.

But premium property has several characteristics that can make it particularly sensitive when conditions weaken.

Higher-end buyers often have more discretion

Someone searching for a relatively affordable home may have limited options.

They may need somewhere to live and only qualify for a relatively narrow price range.

That creates ongoing competition for cheaper houses and units even when the broader property market weakens.

At the premium end, buyers often have more flexibility.

They may be able to delay buying.

They may already own a property.

They may decide that a particular home is simply not worth the asking price.

Australian Centre for Housing Research director Emma Baker told ABC that buyers at the lower end often still need housing and have a narrower part of the market available to them, while higher-end buyers have more scope to delay or walk away. (ABC News)

That difference in buyer urgency matters.

Higher Interest Rates Hit Large Loans Harder in Dollar Terms

The RBA cash-rate target is currently 4.35%, after three 25-basis-point increases during 2026. (Reserve Bank of Australia)

Higher rates reduce borrowing capacity across the market.

But someone purchasing a $2 million property is potentially dealing with a much larger mortgage than someone purchasing a $700,000 property.

Even when two borrowers experience the same interest-rate increase in percentage terms, the dollar effect can be very different.

That can narrow the pool of buyers capable of competing for higher-value properties.

It can also make purchasers more selective about what they are prepared to pay.

More Stock Gives Buyers Greater Negotiating Power

Australia's selling conditions have also become less favourable for vendors.

Cotality reports more than 139,100 properties are currently listed for sale nationally, an increase of 18.1% from a year earlier and around 2.2% above the five-year average. (Cotality)

Median selling time has increased from 28 days a year ago to 39 days.

Vendor discounting across the capital cities has widened to 4.2%, its highest level since January 2023. (Cotality)

When buyers have more homes to choose from, they do not necessarily need to chase a vendor's asking price.

That can shift negotiating power toward purchasers.

And those conditions can become particularly noticeable in expensive suburbs where properties take longer to sell and the buyer pool is smaller.

The Downturn Started at the Top, But It Is Spreading

It would be misleading to interpret the latest data as saying only prestige property is declining.

That was more accurate earlier in the downturn.

It is becoming less true now.

Cotality says higher-value homes in Sydney, Melbourne and Canberra were the first major segments to turn down.

But more recently, property values have also begun falling across Brisbane, Adelaide and Perth. (Cotality)

The difference is that declines in those markets are currently more evenly distributed across different price bands.

Nationally, Cotality says dwelling values fell 3.1% over the three months to August.

The downturn is therefore becoming broader even though the most expensive properties continue to record some of the largest cumulative declines. (Cotality)

93% of Capital-City Suburbs Are Now Recording Falls

Another measure demonstrates how widespread the downturn has become.

Cotality data reported by ABC shows 93% of capital-city suburbs recorded declining home values through winter.

That was more than double the 45.8% recorded during autumn. (ABC News)

Sydney remained the weakest major market in August, with Cotality's broader index showing values down 1.4% during the month and 7.1% below their February peak. (ABC News)

Melbourne and Canberra fell 1.1% in August, while Brisbane declined 1.0%.

So although high-value properties remain at the front of the correction, weakness is no longer confined to prestige suburbs.

More Affordable Properties Are Still Holding Up Better

Relative affordability is increasingly valuable in a market where borrowing capacity has been reduced.

Cotality says both lower-priced homes and units have generally displayed greater resilience.

Units in particular have held up better because they provide a lower entry price than detached housing in many major cities. (Cotality)

PropTrack's August Home Price Index tells a similar story.

National unit prices remained 3.0% higher than a year earlier, compared with 1.5% growth for houses.

Units were also about 1.8% below their peak, while houses were around 2.9% below peak. (Real Estate Australia)

In Sydney, PropTrack says house prices were approximately 5.8% below peak, while unit prices were down around 3.2%.

In Melbourne, houses were around 6.3% below peak compared with 2.2% for units. (Real Estate Australia)

Different property indexes use different methodologies, so individual percentages should not be treated as directly interchangeable.

But the direction is consistent:

Affordability is helping support cheaper housing segments.

Why Are Buyers Still Competing for More Affordable Homes?

Interest rates are forcing buyers to adjust.

Someone who previously planned to purchase a detached house may now only qualify for a townhouse or apartment.

Someone targeting an inner-city suburb may shift further away from the CBD.

Someone hoping to spend $1.2 million may discover that their current borrowing capacity supports something closer to $900,000.

Those buyers do not necessarily leave the property market entirely.

They move down the price spectrum.

That can concentrate demand among properties that remain within reach.

It is one reason the lower quartile can hold up better even while the broader market is falling.

But A Cheaper Home Does Not Automatically Mean Better Affordability

This is the part buyers need to understand.

Property price and property affordability are not the same thing.

A property can decline by $50,000 and still become harder for someone to buy.

Why?

Because the buyer's borrowing capacity may have fallen by even more.

Australia's latest housing-affordability analysis shows that a household earning a typical income of approximately $125,000 can afford only 12% of homes sold nationally.

Five years earlier, that household could afford around 43%. (Real Estate Australia)

That is the lowest affordability result on record in the realestate.com.au Housing Affordability Index.

Higher mortgage rates have reduced borrowing capacity enough to overwhelm much of the benefit created by recent price falls. (Real Estate Australia)

Why Borrowing Capacity Matters More Than the Asking Price

Imagine seeing a property reduced from $1 million to $900,000.

A $100,000 reduction sounds significant.

But the critical question is:

Can your household actually borrow enough to purchase it?

A lender looks at much more than the property price.

It considers factors including:

• household income

• existing mortgages

• personal loans

• credit-card limits

• HELP debt

• number of dependants

• living expenses

• deposit size

• employment type

• other financial commitments

Two buyers with identical incomes may receive very different borrowing outcomes depending on those factors.

Lenders Also Test Your Mortgage at a Higher Rate

Another reason falling prices do not automatically translate into easier borrowing is lender serviceability assessment.

APRA confirmed in May that the mortgage serviceability buffer remains at 3 percentage points. (APRA)

In practical terms, regulated lenders generally need to assess whether a borrower could manage repayments at an interest rate materially higher than the rate actually being offered.

The purpose is to ensure borrowers have some capacity to withstand future financial shocks.

It also means today's advertised home-loan rate is not the only rate affecting borrowing capacity.

This is why even a buyer who feels comfortable making repayments may discover that their lender's calculated maximum loan amount is lower than expected.

Deposit Size Can Change Your Options

The deposit remains another major variable.

Someone buying a discounted premium property may still need a very substantial amount of cash.

The deposit can influence:

• the loan-to-value ratio

• interest-rate pricing

• eligibility with particular lenders

• lenders mortgage insurance

• lender appetite for the application

• the buyer's remaining cash buffer after settlement

A lower purchase price may reduce the required deposit in dollar terms.

But it does not remove the need to structure the purchase carefully.

Different Lenders Can Produce Different Outcomes

Mortgage lending is not completely uniform.

One bank may assess a borrower differently from another.

This can be particularly relevant for:

• self-employed borrowers

• contractors

• borrowers receiving bonuses or overtime

• investors

• applicants with multiple properties

• people with complex income

• borrowers using family guarantees

• buyers with smaller deposits

Lenders may differ in how they calculate income, expenses, rental income and liabilities.

That means someone declined or restricted by one lender may not necessarily receive the same result everywhere.

This is one reason a mortgage broker can add value before a buyer starts making offers.

Self-Employed Buyers Should Be Especially Careful

A falling property market can create opportunities for business owners and self-employed buyers.

But finance approval can be more complex.

Different lenders may have different approaches to:

• business income

• director wages

• distributions

• depreciation

• retained earnings

• business debts

• one-off expenses

• most recent financial results

For a self-employed buyer looking at a property that has recently fallen in value, the important question is not simply whether the asking price looks attractive.

It is whether the borrower's income position satisfies the relevant lender's policy.

Investors Are Pulling Back More Sharply

Australia's broader lending data also helps explain some of the weakness in higher-value markets.

ABS figures show the number of new investor loan commitments fell 8.6% during the June quarter, the largest quarterly decline since September 2022.

The value of investor lending fell 10.2%. (Australian Bureau of Statistics)

New South Wales investor loan numbers fell 15.5% in the quarter, Victoria declined 14.2%, and Queensland fell 10.1%. (Australian Bureau of Statistics)

Some higher-priced markets have traditionally attracted investors with substantial equity and borrowing capacity.

When those buyers step back, competition can weaken quickly.

Overall Home Lending Is Also Cooling

The ABS recorded 134,225 new dwelling loan commitments in the June quarter, down 5.4% from the previous quarter.

The total value of new home lending fell 5.2%. (Australian Bureau of Statistics)

Owner-occupier loan numbers declined 3.3%.

First-home buyer commitments fell 2.9%.

Investor commitments fell 8.6%. (Australian Bureau of Statistics)

That matters because a property market ultimately depends on the amount of purchasing power available to buyers.

Lower borrowing capacity and fewer finance commitments can translate into weaker bidding competition.

Sellers Are Having to Adjust Expectations

The property downturn is also changing seller behaviour.

Higher-priced suburbs are appearing prominently among markets where owners are accepting larger discounts from their original asking prices. (Real Estate Australia)

That does not mean sellers are suddenly willing to accept any offer.

But it does mean price negotiation has become more important.

For buyers with strong finance approval and clear borrowing limits, that can create opportunities that were not available during stronger market conditions.

It also strengthens the case for obtaining finance guidance before negotiating.

A buyer who understands their real borrowing limit can negotiate with greater confidence.

Could This Be a Buying Opportunity?

Possibly.

But "prices are falling" is not enough information to determine whether a purchase makes sense.

A buyer should consider:

• how long they expect to own the property

• whether repayments remain comfortable

• their emergency savings

• future interest-rate risk

• renovation or maintenance costs

• location and property quality

• local housing supply

• whether they may need to sell again soon

The largest price decline is not necessarily the best purchase.

A property can fall significantly because it was previously overpriced, because local demand has deteriorated, because supply has increased or because the property's characteristics make it harder to sell.

Price should always be considered alongside the underlying property.

Buyers Should Avoid Trying to Pick the Exact Bottom

One temptation in a falling market is to wait until prices reach their absolute lowest point.

The problem is that nobody knows where that point is until after it has passed.

Australia's property market is also not one market.

Sydney's premium segment can behave differently from Melbourne units.

Brisbane houses can behave differently from regional NSW.

Even neighbouring suburbs can experience very different conditions.

The more useful approach for many buyers is to determine whether:

the right property is available, the finance is manageable and the purchase makes sense for their longer-term plans.

Could Premium Homes Continue Falling?

They could.

Cotality says selling conditions remain soft and the broader downturn continues to spread.

National sales activity has fallen 2.7% over the year to August, with capital-city sales down 5.2%. (Cotality)

Auction conditions are also weak.

Cotality's four-week average capital-city clearance rate was 49.5% at the end of August and had remained below 50% since early June. (Cotality)

However, there are also signs that the rate of deterioration at the premium end may be stabilising.

Ray White data cited by ABC showed open-home attendance at premium properties dropped sharply between January and July before beginning to edge higher. (ABC News)

That does not necessarily mean prices have bottomed.

It simply shows that housing conditions can change before broader price indexes capture the shift.

What Happens if the RBA Raises Rates Again?

This remains one of the biggest risks to the housing market.

The RBA cash rate is currently 4.35%, and the next monetary-policy decision is scheduled for 29 September 2026. (Reserve Bank of Australia)

Another rate increase could further reduce borrowing capacity and buyer demand.

That would potentially place additional pressure on property values.

Higher-value housing could remain particularly exposed because it relies on buyers having greater access to credit or substantial equity.

But even affordable segments would not be immune.

Cotality has already noted that what began as a downturn concentrated among higher-value homes has become increasingly broad-based. (Cotality)

A Lower Purchase Price Is Only One Part of the Equation

For a home buyer, the real affordability equation includes:

Property price + deposit + interest rate + income + existing debts + lender policy + loan structure.

Ignoring any one of those variables can produce an incomplete picture.

A $50,000 price reduction may be valuable.

But so can:

• eliminating unnecessary credit limits

• paying down personal debt

• increasing the deposit

• selecting a lender that treats income more favourably

• structuring the mortgage appropriately

• using an offset account effectively

This is why mortgage strategy becomes particularly important during a changing market.

What Buyers Should Do Before Making an Offer

Before becoming emotionally committed to a property, buyers should understand their finance position.

A useful pre-purchase review should establish:

Your realistic borrowing capacity

Not an online calculator estimate, but an assessment based on your actual circumstances.

Your comfortable repayment level

The maximum a lender will approve is not necessarily the amount you should borrow.

Your deposit position

Including purchase costs and the emergency savings that remain afterward.

Your lender options

Especially if your income or financial circumstances are not straightforward.

Your interest-rate exposure

Including what happens if mortgage rates increase further.

Your loan features

Such as offset, redraw, fixed or variable pricing and repayment flexibility.

That information makes the property-search process far more efficient.

The Bigger Lesson: Falling Prices Can Create Opportunity, But Finance Still Determines What You Can Buy

Australia's premium housing market is clearly feeling the pressure.

Sydney's upper-quartile houses are now 10.7% below peak.

Melbourne's are down 10.5%.

More affordable properties have fallen much less, although the downturn is increasingly spreading across the broader market. (Cotality)

For buyers, that may create opportunities.

But falling property prices do not automatically restore affordability.

Australia still has record-low housing affordability, a 4.35% cash rate, a 3-percentage-point mortgage serviceability buffer and weaker new lending activity. (Real Estate Australia)

So instead of asking only:

"How much has this property fallen?"

buyers should also ask:

"What can I comfortably borrow, what will the loan cost me, and is this the right finance structure for my circumstances?"

That is the question that ultimately determines whether a falling property price becomes a genuine opportunity.

Thinking About Buying While Property Prices Are Falling?

At Loan & Own Mortgages, we help Australian home buyers, investors and self-employed borrowers understand their borrowing position before they commit to a property.

That can include comparing lenders, assessing borrowing capacity, reviewing deposit requirements, understanding repayments and finding a loan structure that fits your circumstances.

A falling market may create opportunities.

But knowing your finance position first can help you recognise which opportunities actually make sense.

Speak with Loan & Own Mortgages before making your next property move.

Data sources

Cotality, September 2026 Housing Chart Pack: Upper-quartile houses are 10.7% below peak in Sydney and 10.5% below peak in Melbourne. National dwelling values declined 3.1% over the three months to August, national sales fell 2.7% annually, selling times lengthened to 39 days and national listings increased 18.1% year-on-year. (Cotality)

ABC News, 10 September 2026: Cotality data showed the median value of upper-quartile houses at around $2.1 million in Sydney and $1.2 million in Melbourne, while lower-priced houses and units continued to display greater resilience. (ABC News)

realestate.com.au Housing Affordability Report 2026: A typical-income household earning approximately $125,000 can afford just 12% of homes sold nationally, the lowest share recorded by the index. (Real Estate Australia)

Australian Bureau of Statistics, June Quarter 2026 Lending Indicators: New dwelling loan commitments fell 5.4% during the quarter, including a 3.3% fall in owner-occupier loans and an 8.6% decline in investor loan commitments. (Australian Bureau of Statistics)

Australian Prudential Regulation Authority: APRA continues to require a 3-percentage-point mortgage serviceability buffer and has kept its other macroprudential settings unchanged. (APRA)

Reserve Bank of Australia: The cash-rate target is currently 4.35%, with the next monetary-policy decision scheduled for 29 September 2026. (Reserve Bank of Australia)

This article provides general information only and does not constitute personal financial, credit, investment, tax or legal advice. Property values can rise or fall, and borrowing capacity, interest rates, lender policies and loan eligibility depend on individual circumstances.