Westpac forecasts investor slump as housing cycle turns

The bank said it expected the changes to “drive a steep fall in investor activity with wider market turnover declining 20 per cent”.

Those shifts feed into Westpac’s updated price profile, with the bank now forecasting national dwelling values to fall by about 2 per cent over the second half of 2026.

Westpac senior economist Matthew Hassan said the uncertainty around the impacts of the tax changes was heavily weighing on the outlook for the next few quarters.

“The combination of uncertainty around tax changes and a sharp drop in turnover could see markets hit a more material ‘air pocket’ near term,” he said.

3 shifts shaping the next phase

The bank distilled the combined effect of higher borrowing costs and investor tax changes into three structural shifts it expects to define the next stage of the cycle.

First, it flagged a major contraction in investment demand, saying that it was forecasting “a 34 per cent fall in new investor activity with the mix skewing more towards newly built dwellings”.

Westpac is also predicting that overall market churn will slow substantially as investors pull back on both sides of the ledger, forecasting a 20 per cent decline in total dwelling turnover.

Third, the bank expects “a stalling in dwelling price growth, which is now expected to end flat for 2026 across the major capital cities”.

States moving through the turn at different speeds

Westpac’s state breakdown showed that the cooler phase was not arriving evenly across the country.

In NSW, the bank judged that the downswing was well underway, saying that “housing has moved into a clear correction phase across NSW with both prices and turnover showing declines” and pointing to Sydney price falls of 0.9 per cent in May, with its daily index tracking a further 1 per cent drop in June.

Westpac said that inquiries pointed to the slowdown being “slightly more pronounced in NSW”, with the bank expecting finance approvals to decline by around 4.5 per cent in the June quarter and to be running at about 17 per cent below recent levels by the September quarter.

Victoria also stood out on the downside, with Westpac saying that “Victoria’s housing market has been the clear underperformer over the last two cycles and is weakening again” and reporting that prices across the state fell 1.8 per cent over the three months to May.

In Queensland, Westpac said: “Qld housing markets are showing signs of cooling but are coming from a hot starting point with acute supply shortages still a major factor”, pointing out that dwelling prices rose 3.3 per cent over the three months to May to be 17.1 per cent higher over the year.

Perth was also singled out as an example of how far tight supply and population flows can stretch prices.

“The last few months has continued to see solid gains but with momentum slowing,” Westpac said and noted that monthly increases in Perth had stepped down to between 1 and 1.5 per cent in April, May, and June after averaging 2.4 per cent over the previous six months.

South Australia, meanwhile, sits between the softening east‑coast markets and the still‑tight resource states.

“The SA housing market is in an interesting position. While rate rises and policy developments have impacted, the hit to buyer sentiment has been milder than in other states,” Westpac said.

It reported that South Australian dwelling values lifted 3.6 per cent across the four months to May, compared with a 5.5 per cent increase over the prior four‑month period.

[Related: CBA tips major investor pivot after tax overhaul]