Australian housing market faces significant price correction

The Australian housing market is facing a significant correction, with analysts warning that property valuations in capital cities are substantially overvalued relative to historical rental yields. Data from AMP economist Shane Oliver suggests that median house prices in several cities are overvalued by at least 25% when compared to inflation-adjusted rents over the last 40 years. Brisbane shows the highest overvaluation at 61%, followed by Sydney at 41% and Melbourne at 24%.

Market data indicates a growing downturn, with house prices having declined approximately 5.7% since mid-April 2026. This trend is being driven by a combination of rising property listings and evaporating buyer demand. Listings have increased significantly in mid-sized capitals, with Perth (+57.7%), Brisbane (+55.2%), and Adelaide (+44.6%) seeing the highest surges. In Brisbane, auction clearance rates have reportedly fallen into the low-30s.

Financial institutions have provided varying forecasts for the peak-to-trough decline. AMP predicts a roughly 10% drop from recent peaks, while ANZ expects Sydney prices to fall by 14.5% and Melbourne by 12.8%. HSBC has forecasted a 13% decline across capital cities over a 15-month period. Factors contributing to the correction include rising interest rates, extreme unaffordability, and federal policy changes regarding negative gearing and capital gains tax.