Massive drop in house prices forecast for 2027
Leading bank economist says 'the housing price correction is likely to continue for some time yet'.
A LEADING bank is predicting house prices around the country to drop significantly in the new year.
HSBC chief economist Paul Bloxham said the recent big shifts in tax policy concerning investment properties, as well as the RBA’s earlier three interest rate hikes, have rapidly sapped investor demand from the market.
“As we see it, first home buyers and other owner-occupiers are unlikely to want to try to ‘catch a falling knife’,” Bloxham said.
“With no rate cuts expected anytime soon (there is still some risk of another hike), we expect no near-term circuit breaker, which means the housing price correction is likely to continue for some time yet.”
He predicted house prices could fall up to eight per cent by the end of 2027.
“The pace of decline in the June figures suggest the risks to this view look tilted to the downside too,” Bloxham said.
Other major banks like ANZ and NAB have forecasted drops of 10 per cent in Sydney and Melbourne in 2027.
“So far, housing prices have only declined in the major capital cities, Sydney and Melbourne, but the mid-tier cities are seeing a loss of momentum in housing price growth,” Bloxham said.
“Our take is that a significant driver of recent momentum in the mid-tier cities – including Perth, Brisbane and Adelaide – has been investor demand.”
Bloxham added Perth is a market that could be hit hard, with housing prices up 24 per cent in the past year.
In Perth, investors made up 40 per cent of the new approvals in 2025, rising from 15 per cent in 2024.
“Investor demand is now drying up quickly,” Bloxham said.
“This is weakening the Sydney and Melbourne markets already and we expect it to be a key driver of housing price falls in the smaller cities too – including Perth, Brisbane and Adelaide – in the coming quarters.”
He said the impact of the federal Budget’s tax changes is hard to gauge yet.
“Negative gearing has been a feature of the tax system for decades and the capital gains tax discount has been in place since 1999,” Bloxham said.
“Removing these all at once has no recent historical precedent and may make this housing correction quite different to previous, often interest-rate driven, cycles.”
However, he added that if house prices do come down further, it could have a silver lining for interest rates and inflation.
“At some level, the cooling housing market will be helpful for the RBA if it slows down consumer spending, as this will also help to take some more pressure off inflation, which is too high,” Bloxham said.
“Through this mechanism, the cooling housing market adds to the case for the RBA, if forward-looking in its approach, to remain on hold, rather than hike further.”
