Why Falling House Prices Aren't Pulling Buyers Back In

Falling house prices were supposed to be the moment first home buyers had waited a decade for. Instead, only about half the homes taken to auction are finding a buyer. The national clearance rate came in at 50.3 per cent in early August, against 72.9 per cent in the same week a year earlier. Sydney managed 54 per cent, down from 74. Melbourne sat at 57 per cent, down from 70. Cheaper stock, fewer hands in the air.

The hesitation is not hard to explain. ANZ now expects Sydney values to fall 9.9 per cent this year and another 2.9 per cent in 2027 — a peak-to-trough slide of 14.5 per cent, or roughly $236,000 off the median house. Melbourne is tipped to lose about $128,000, Adelaide $99,000, Brisbane $96,000 and Perth $56,000. Very few people want to buy something that is still getting cheaper each month.

One group can't wait it out. Between 1 October 2025 and 30 June 2026, 50,633 buyers used the expanded federal deposit guarantee to get in with 5 per cent down. They bought at or near the top. Many are now watching the equity in their only asset drain away before their first anniversary in the place.

Where did the investors go?

Investors are usually the ones who step in when a market wobbles — they buy on yield and tax position rather than on mood, so they tend to put a floor under prices. This time they've thinned out too. Home lending fell 3.8 per cent in the March quarter from its December 2025 peak, with owner-occupier lending down 4.3 per cent and investor lending down 3.0 per cent.

That gap produced a statistic that reads better than the reality: the investor share of lending is now the highest since September 2016. It didn't climb because investors piled in. It climbed because owner-occupiers walked away faster. By the June quarter, investor loan approvals were falling at their steepest rate since September 2022. The buyers of last resort have joined the strike.

How a 5 per cent deposit becomes negative equity

Negative equity means owing the bank more than the property is worth. It sounds abstract until you run it against a real purchase price on a real loan.

The maths on a January purchase in Sydney

Canstar modelled a buyer who bought the Sydney median house at the January 2026 peak — around $1.63 million — with a 5 per cent deposit. On ANZ's forecast path, that buyer would be roughly 9 per cent underwater by mid-2027, owing about $128,000 more than the home is worth. The same purchase with a 20 per cent deposit still leaves about 8 per cent equity intact. The deposit size is doing all the work.

Why being underwater costs you even when rates fall

The trap isn't the paper loss. It's that you lose options. Refinancing needs equity, so a borrower in negative equity is stuck with their current lender at whatever rate that lender feels like charging — and that bites hardest at exactly the moment the RBA starts cutting and everyone else is shopping around. Canstar's Sally Tindall has made this point repeatedly: the flexibility disappears first.

The stress already showing in the data

Three RBA rate rises in six months have pushed first home buyer mortgage delinquencies to a seven-month high, according to Equifax. Arrears past 90 days among that group are running at close to double the rate of other borrowers. Low-deposit lending was a record $10.2 billion in the six months to 31 March 2026, up 51 per cent, or 4.3 per cent of all new owner-occupier mortgages — the highest share on record.

What falling house prices mean for your deposit

Negative equity only becomes a real loss if you're forced to sell. If you can hold the loan and you're not moving cities, the number on a valuation report is noise. What matters is whether the repayment still clears with room to spare after another rate rise. Stress-test your own budget at one percentage point above your current rate. If it doesn't work, talk to your lender before you miss anything.

Is this a correction or a crash?

Forecasters are still arguing about the depth, not the direction. NAB has revised its national call from a 2 per cent fall to 5 per cent. CBA's Trent Saunders has said outcomes have been weaker than the bank expected, with values already near the trough it had pencilled in for January 2027. Barrenjoey's Johnathan McMenamin describes a downturn sharper and broader than forecast, with one to two percentage points of downside left.

It is an adjustment. It is a painful adjustment. It is not a crash.

That's SQM Research founder Louis Christopher, whose argument is that a genuine supply shortage stops the slide turning into 2008. For perspective: over the past two decades, national corrections have averaged around 8 per cent. Values have now rolled back to about where they sat in November 2025, and 54 per cent of price segments are falling, up from 33 per cent three months earlier.

What to watch before spring listings hit

Three things will tell you where this goes. Watch core inflation — another hot print puts the RBA back in play and takes more borrowing capacity out of the market. Watch clearance rates through September and October, when spring stock arrives; if listings jump and clearance stays near 50 per cent, prices have further to fall. And watch investor lending, because the market doesn't steady until someone starts buying again.

If you're saving, the practical move is unglamorous: keep building the deposit rather than rushing a 5 per cent entry into a falling market. Every extra percentage point of deposit is a buffer against the exact scenario 50,000 recent buyers are living through. If you already own, order a free valuation from your lender, check your loan-to-value ratio honestly, and find out now whether refinancing is still on the table.