Two big banks have slashed their house price forecasts. The numbers are hair-raising

There has been a break in the big four banks’ ranks over the future of property prices. ANZ and NAB have capitulated over the past couple of days and joined the legion of economists predicting national capital house prices are heading down precipitously.

The signs are difficult to ignore – an avalanche of sellers, increasing levels of stale stock sitting on property portal shelves, and auction clearance rates wallowing around 50 per cent.

While the proposed removal of favourable tax treatment on property investing was being robustly (but cosmetically) debated in Canberra on Monday, the real-time effects of the policy to remove the tax incentives, including negative gearing, are glaringly clear.

The head of Westpac’s consumer bank, Carolyn McCann, last week removed any doubt when she declared that applications for housing investor loans had fallen 20 per cent in just three weeks since the May budget.

It is reasonable to assume Westpac’s experience has been mirrored across other lenders. If so, this represents a massive and almost instantaneous change.

ANZ and NAB have offered some numbers around what this is doing to house values – and it’s hair-raising.

ANZ is expecting capital city prices to fall 2.1 per cent in calendar 2026, which is a significant revision to its most recent forecast that they would go up 2.8 per cent this year – a near 5-percentage-point swing. And it is now forecasting prices will fall even more next year.

NAB’s views are similar to those of ANZ, which is predicting capital city prices will fall by about 2 per cent in 2026, having previously expected values to rise by 2 per cent.

The proposed capital gains tax change isn’t the only culprit, but it is certainly the last straw.

And while a 2 or 3 per cent fall in property values across the nation may not seem like a big deal, those combined capital values disguise some ugly price falls across our largest markets: Sydney and Melbourne.

Since the start of 2026, there has been significant price weakness in both those cities, while other capitals have experienced price buoyancy. But the smaller capitals seem to be hitting their peak or starting to turn, which is exposing the nasty naked falls in the two major cities.

ANZ expects home prices in Australia’s two biggest cities to fall about 8 per cent this year. “But that weakness is spreading across the country, and we are forecasting price falls in all the capitals next year,” its economists warn.

NAB says the falls across the eight capital cities will be driven by 6-7 per cent drops in Sydney and Melbourne house prices, and a material slowing in the mid-sized capitals.

The pullback in investor activity will be enough to move from a recent projected yearly peak in investor credit growth of 10.4 per cent to a year-on-year fall of 0.8 per cent in the July quarter.

Loans to owner-occupiers won’t dive to the same degree, but overall credit growth is expected to be more than halved.

ANZ’s economists “still see total housing credit growth easing sharply to a low of 2.9 per cent year-on-year in early 2028 (from 7.1 per cent year-on-year in [the first quarter of] 2026).”

Over time, the value of Australian residential property will resume its upward trajectory, the experts say. But it may take a few years before shell-shocked investors re-enter the market.

To the extent economists see a recovery in prices in 2028, it is on the back of the expectation that interest rates will be falling and that Donald Trump won’t launch another sentiment-crushing conflict.

You can’t really bank on either of those conditions.

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