Sydney and Melbourne Prices Are Falling — But Your Budget May Be Shrinking Faster
If you have been watching Sydney and Melbourne house prices and hoping for a correction that finally brings something within reach, the numbers tell a more complicated story.
According to the latest Westpac property price forecasts analysed by Canstar, the median house price in Sydney could fall a further $30,000 by the end of 2026, while Melbourne could drop around $18,000. That sounds like progress — until you look at what is happening to borrowing capacity at the same time.
Three Rate Hikes Have Already Cut Borrowing Power
The RBA has raised the cash rate three times this year, and each hike directly reduces how much a lender will approve you for. A single person on the average wage has already seen their maximum borrowing capacity drop by around $35,800. For a couple on two average incomes, that figure is roughly $71,600.
That means even though a Sydney house might cost $30,000 less on paper, the bank may lend you $36,000 less than it would have at the start of the year. The gap is widening, not closing.
What If Rates Rise Again?
Some economists are forecasting two more rate hikes before the end of the year. If that happens, borrowing capacity could shrink by around $57,600 for a single buyer and roughly $115,200 for a couple — wiping out about 10 per cent of their buying budget since January.
Perth and Brisbane, meanwhile, are expected to keep climbing. Westpac’s forecast has Perth adding around $39,000 and Brisbane around $32,000 to their median house prices by December — even with the rate rises.
APRA Is Keeping the 3% Buffer
APRA confirmed this week that its 3 percentage point serviceability buffer will stay in place. That means if your actual rate is 6.26 per cent, the bank tests whether you can handle repayments at 9.26 per cent. On a $600,000 loan, that is the difference between $3,698 and $4,940 per month.
The buffer exists to protect borrowers from rate shock, but in a higher-rate environment it sets a tough bar — especially for first home buyers stretching to enter the market.
What This Means for You
Falling prices in Sydney and Melbourne do not automatically mean improved affordability. If your borrowing power is shrinking faster than the asking price, the maths may actually be working against you.
The practical takeaway: know your numbers before you start looking. Get a clear picture of what you can borrow today, stress-test it against possible further hikes, and work out whether the timing makes sense for your situation.
Talk to a Finance Hub broker — call 0430 11 11 88 or visit finhub.net.au
Source: Canstar, 30 May 2026
Finance Hub and Networks Pty Ltd | ACL 573164 | ACN 644 141 613
Aggregated through Connective Credit Services Pty Ltd, ABN 51 143 651 496, ACL 389328. Credit assistance provided. This page does not constitute financial advice.
