House prices may be in freefall across the country but if you think that has made the Great Australian Dream more affordable think again.
New research by Domain reveals that mortgage repayments in Sydney, Melbourne and Canberra are now higher than they were during the recent house price peaks.
Across the combined capitals, house prices are 6.2 per cent below their peak, reducing the required deposit by $16,289, but rising interest rates are now hindering affordability.
Nationwide, the estimated monthly mortgage repayments have fallen by just 0.2 per cent, or $10 a month – a saving that would barely cover a takeaway coffee and a snack.
The Reserve Bank of Australia this week hiked the cash rate for a fifth time this year to an 18-year-high of 4.85 per cent, bringing the increase in repayments since January to $6460 for an average mortgage of $730,719.
Domain chief residential economist Nicola Powell says it is clear the fall in house prices has not translated into the affordability gains buyers might expect.
“We’ve seen prices decline across every capital city, but higher borrowing costs have absorbed most of the benefit of lower prices,” she says. “We’ve just had another rate rise, and there’s still the possibility of one more.
“The improvement people would normally expect from falling prices simply isn’t there. The pressure point has shifted from house prices to mortgage repayments.”
Powell says modelling by Domain shows house prices will need to see a double-digit decline below their peak to deliver a meaningful improvement for mortgage holders.
“Assuming interest rates remain unchanged, we’d need to see roughly another 10 per cent decline in house prices across the combined capitals to achieve that,” she says.
“This is an important part of the affordability conversation. Normally when prices fall, buying becomes materially more affordable; this downturn is different because house prices and borrowing costs are moving in opposite directions.
“Deposits have become easier to save, but mortgage serviceability hasn’t improved and, in some cities, has actually worsened.”
Powell says this makes it challenging not just for first-home buyers but also for people looking to upgrade.
“Someone selling an apartment and buying a median-priced house may pay less for the property than they would have a year ago, but their ongoing mortgage repayments could actually be higher,” she says.
Powell says the country has already seen the fastest deterioration in housing values on record as a result of higher interest rates, changes to the taxation of investment housing, and weakened confidence.
“We expect prices to continue falling into 2027,” she says. “Ultimately, confidence is unlikely to improve until discussions begin about future cash-rate cuts, and that’s probably something for the latter part of 2027.
“I don’t think the door has completely closed on further rate hikes, but I’m sceptical we’ll get one before the end of the year.”
The last two increases haven’t fully worked their way through the economy yet, so there is a strong case for the Reserve Bank to wait and assess their impact.
In Sydney, house prices are 7.9 per cent below their December 2025 peak but estimated monthly repayments are now slightly higher, at $8211 compared with $8195.
In Melbourne and Canberra, despite house prices falling 6.7 per cent and 4.3 per cent respectively, estimated monthly repayments have increased by 1.5 per cent in Melbourne and 1.9 per cent in Canberra.
Brisbane mortgage holders have received the clearest relief. House prices in the Queensland capital are 5.4 per cent below their June 2026 peak, while estimated monthly repayments have fallen 3.9 per cent, or $231 a month.
Herron Todd White chief economist Cameron Kusher agrees that falling property prices have not yet improved housing affordability because higher interest rates are reducing buyers’ borrowing capacity faster than prices are declining.
“We’re not really getting any relief for borrowers in this market at the moment,” he says. “You’d actually probably have to see prices fall quite a bit more [for] someone entering the market [to be] in a better situation than they have been in the past.
“It’s a tricky situation because … when you’ve got high inflation, and you’ve got to lift interest rates to try and curtail that inflation, mortgage borrowing costs increase.”
Challenger chief economist and former Reserve Bank executive Jonathan Kearns says that house prices cannot continue to outpace household incomes indefinitely because affordability constraints will eventually limit further growth.
He says that while periods of strong price growth will still occur, sustained annual price gains of 10 per cent or more are unlikely over the long run.
Glen Norris is an experienced journalist and editor with a career spanning four decades across Asia, Australia and Europe. His roles have included stints at Bloomberg News and Asian Wall Street Journal.
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