National home values have fallen for six straight months. As at 30 September 2026 they sit 5.2% below their March peak, and Sydney is 8.6% below its February peak, according to Cotality. On 29 September the Reserve Bank lifted the cash rate to 4.60%, its fourth rise this year.
Most commentary on buying property in a falling market is about price: how far values might drop, and whether to wait for the bottom.
For busy, higher-income professionals, price is the part you can see. The part that decides whether a purchase goes smoothly sits on the lending side, and nearly all of it has moved in the last six months. This article covers what has changed in valuations, pre-approvals, borrowing power and equity, with worked numbers for each.
What the market looks like right now
The figures below are the most recent available as at 7 October 2026.
| Measure | Latest | Context |
|---|---|---|
| National home values | 5.2% below the March 2026 peak | Down 1.1% in September, sixth straight monthly fall |
| Sydney home values | 8.6% below the February 2026 peak | Down 7.0% over 12 months |
| Capital city days to sell | Median 39 days | 23 days a year ago |
| Vendor discount | Median 4.2% | Highest since January 2023 |
| Auction clearance rate | 48.2% preliminary, first weekend of October | Below 50% since early June |
| National sales volumes | 19.1% lower than a year ago | |
| New investor loans | 52,599 in the June quarter | Down 8.6%, the largest fall since 2022 |
| Cash rate | 4.60% | Up 1.00 percentage point in 2026 |
Sources: Cotality, ABS, RBA. Full references at the end.
Read as a buyer, that table says there is less competition, more time and more room to negotiate. Read as a borrower, the same table says something different, and that is where the rest of this article goes.
Borrowing power has fallen further than prices
A lender tests every new loan at a rate above the one you will actually pay. APRA requires a serviceability buffer of at least 3 percentage points. When the cash rate rises, the test rate rises with it, and the amount a given income supports comes down.
Illustrative example only, not a client. It holds income, expenses and every other input constant, which a real assessment would not.
Take a household whose income supported a $1.5 million loan at the start of 2026, when it was tested at 8.50%. After 1.00 percentage point of rate rises, the same repayment capacity tested at 9.50% supports about $1.37 million.
That is about $128,000 less, or 8.6%, with no change in the household’s income.
Set that beside the price data. National values are 5.2% below their peak. For this household, borrowing power has fallen further than the national market has. In Sydney, where values are 8.6% below their peak, the two have moved by about the same amount.
This is why a falling market does not automatically mean better affordability. The discount on the price and the reduction in what a lender will advance can cancel each other out. Which one is larger for you depends on your income mix, your existing debts and which lenders’ policies recognise your income accurately. We covered that last point in detail in The Borrowing Capacity Audit.
One boundary matters here. Borrowing power is a ceiling a lender sets, and a lender’s maximum is not a target. Nothing in this article is about getting around the buffer or any other responsible lending control.
A pre-approval from before 29 September was tested at a lower rate
Pre-approvals commonly run for around three months, though this varies by lender. In a rising market that window is rarely a problem. In this one, two things can move inside it.
The first is the rate. A pre-approval issued before the 29 September decision was assessed at a lower test rate than a lender would use today. A lender can reassess at formal approval, and the figure may come back lower.
The second is time. With a median 39 days to sell and fewer homes clearing at auction, searches are taking longer. A buyer who started looking in winter may be relying on an assessment that no longer reflects current settings.
Knowing your borrowing power at today’s rates before making an offer can be the difference between negotiating with confidence and finding out after the contract is signed.
The bank lends on its valuation, not on your price
In a rising market, the lender’s valuation tends to support the contract price. In a falling one, valuers are working from recent comparable sales that are themselves declining, and they are cautious. A valuation below the agreed price is more common in these conditions.
Illustrative example only.
A buyer agrees to pay $1.5 million, with a 20% deposit of $300,000 and a loan of $1.2 million. The lender’s valuation comes in at $1.42 million.
- At 80% of the valuation, the loan falls to $1,136,000. The buyer would need a further $64,000 in cash to complete.
- If the loan stays at $1.2 million, it is now 84.5% of the valuation. Above 80%, lenders mortgage insurance and different pricing can apply.
Either way, the purchase costs more than the buyer planned for, and the vendor still expects $1.5 million.
A valuation shortfall is manageable when there is a finance clause in the contract or cash in reserve. It is much harder at auction. An auction purchase is generally unconditional, with no cooling-off period and no finance clause. Your solicitor or conveyancer can confirm the rules in your state and what protection a particular contract gives you.
Different lenders use different valuers, and valuations of the same property can differ. That is one reason the choice of lender can matter beyond the interest rate.
Equity in a property you already own has shrunk faster than its value
Many upgraders and investors plan to fund a deposit from equity in a property they already hold. Lenders will generally release equity up to 80% of the property’s current value, less what is owing. Because the loan stays the same while the value falls, usable equity drops much faster than the value does.
Illustrative example only.
A Sydney home was worth $2.0 million at the February peak, with $1.2 million owing.
- At the peak: 80% of $2.0 million is $1.6 million. Usable equity is $400,000.
- After an 8.6% fall: the home is worth $1,828,000. 80% of that is $1,462,400. Usable equity is $262,400.
An 8.6% fall in value has removed $137,600, or 34%, of the equity available for the next purchase.
For anyone planning to use equity, a current valuation tells you more than an estimate from six months ago. We look at why the structure of the security matters in The Hidden Cost of Cross-Collateralisation.
What no one else is saying
A falling market is hardest on the buyer everyone assumes it helps, and kindest to one who rarely gets mentioned.
The buyer with cash and no property to sell gets the headline benefit: lower prices and less competition. But that buyer’s borrowing power has fallen by a similar amount, so the gain can be smaller than it looks.
The upgrader is in a different position. Someone selling one home to buy a more expensive one is selling and buying in the same market, and the gap between the two is what they finance.
Illustrative example only.
A family plans to sell a $1.5 million home and buy a $2.5 million one. The gap is $1.0 million. If both have fallen 8%, they sell for $1.38 million and buy for $2.3 million. The gap is now $920,000.
The changeover costs $80,000 less than it did at the peak, before counting lower stamp duty on the lower purchase price. Cotality’s September chart pack showed Sydney’s most expensive quarter of houses had fallen 10.7% from their peak, more than the broader market. Where the home being bought has fallen further than the home being sold, the gap narrows again.
There is a real risk on the other side. The existing home has to sell in a market where homes take a median 39 days and about half of auctions are not clearing. Buying before selling can mean carrying two properties for longer than planned. The order of the two transactions, and the finance that sits between them, deserves as much attention as the price of either.
Investors: fewer of them, and a different set of numbers
Investors took out 52,599 new loans in the June quarter, 8.6% fewer than the March quarter and the largest fall since 2022, according to the ABS. In NSW the fall was 15.5%.
Two things changed for investors this year beyond rates.
Since the 2026 tax reform, rental losses on established residential property bought after 7:30pm AEST on 12 May 2026 can no longer be offset against wage income from 1 July 2027. New-build property is unaffected. In our assessments, that can reduce borrowing capacity on the same income significantly, in some cases by 20% or more. The tax treatment itself is a matter for your accountant.
APRA has also capped new lending at a debt-to-income ratio of 6 times or more at 20% of each bank’s new loans since February 2026. We explain how that plays out in What APRA’s 2026 DTI Rules Mean for Property Investors.
With fewer investors competing, property selection carries more weight than it has in years. The cash-flow profile of the property, and whether it is established or new, now feeds directly into what a lender will support.
What preparation looks like in this market
None of this is a case for buying now, or for waiting. That depends on your goals, the property and whether you can hold it comfortably. What the current conditions do reward is being ready before an offer goes in.
In practice, preparation tends to mean:
- Borrowing power assessed at today’s test rates, across lenders whose policies suit your income.
- A pre-approval recent enough to reflect the 29 September rate decision.
- A current valuation on any property being used for equity.
- A view on how a valuation shortfall would be covered, before signing an unconditional contract.
- For upgraders, a plan for the order of selling and buying and the finance in between.
- Repayments that stay comfortable if rates rise again. On a $1.2 million loan over 30 years, repayments are about $7,585 a month at 6.50%.
The professionals behind a sound decision
- Your broker assesses borrowing power at current rates, compares lender policy and valuation approach, structures the loan and reviews it over time.
- Your accountant models the tax outcomes, including the 2026 negative gearing and capital gains tax changes and the ownership structure.
- A licensed financial adviser considers whether property suits your broader goals alongside other asset classes.
- A buyer’s agent can assess asset quality and negotiate, which carries more weight when vendors are discounting.
- Your solicitor or conveyancer reviews the contract, including the finance clause, cooling-off rights and settlement terms.
Frequently asked questions
Is it a good idea to buy property in a falling market?
It depends on your circumstances, the property and how long you plan to hold it. A falling market can mean less competition and more room to negotiate. It can also mean lower borrowing power, cautious valuations and a longer wait if you need to sell. Nobody can reliably pick the bottom.
Why has my borrowing power dropped if my income hasn’t changed?
Lenders test loans at a rate at least 3 percentage points above the actual rate. Each cash rate rise lifts that test rate. In our illustrative example, 1.00 percentage point of rises reduced a $1.5 million borrowing capacity by about $128,000.
What happens if the bank valuation is lower than the purchase price?
The lender bases the loan on its valuation. You would generally need to cover the difference in cash, accept a higher loan-to-value ratio, which can bring lenders mortgage insurance, or renegotiate if your contract allows it.
Is my pre-approval still valid after a rate rise?
It may still be within its expiry date, but a lender can reassess at formal approval using the current test rate. A pre-approval issued before 29 September 2026 was assessed under lower rates.
Can I use equity in my current home if values have fallen?
Often, subject to a current valuation and the lender’s assessment. Usable equity falls faster than the property’s value because the loan balance stays the same. In our example, an 8.6% fall in value reduced usable equity by 34%.
Is a falling market good for upgraders?
It can be. When both homes fall by a similar percentage, the dollar gap between them shrinks. The risk is on the selling side, where homes are taking longer to sell.
Should I wait until prices stop falling?
That is a personal decision. Waiting can pay if values fall further. It also has costs, which we set out in Higher Interest Rate vs the Cost of Waiting to Buy Property.
The opportunity in buying in the current market
Everything above is about what can go wrong. It is only half the picture. For a buyer who has the finance side settled, the same conditions can work in their favour.
Why buying now can make sense
- There are fewer people to compete with. Investors took out 8.6% fewer loans in the June quarter and national sales are 19.1% lower than a year ago. Fewer bidders means less pressure to stretch.
- There is time. With a median 39 days to sell, there is room for a building inspection, a proper contract review and a valuation before committing. In a rising market those steps are often rushed or skipped.
- Vendors are negotiating. A median vendor discount of 4.2%, the highest since January 2023, and about half of auctions not clearing mean price and terms are both open to discussion. A finance clause or a longer settlement is easier to ask for when the vendor has one buyer in front of them.
- The price is the part that is locked in. The purchase price is fixed on the day contracts exchange. The interest rate is not. Loans can be repriced and refinanced as rates and your circumstances change, subject to a lender’s assessment at the time. A lower entry price on a quality property stays with the owner for as long as they hold it.
How owning a quality asset can help over time
A property bought well does several things at once.
- Repayments build ownership. On a principal and interest loan, every repayment reduces the debt, and the share going to principal grows each year.
- Growth applies to the whole asset. A buyer with a 20% deposit owns an asset five times that size, and any growth is earned on the full value. Cotality’s Home Value Index shows national dwelling values rose 66.5% over the ten years to August 2026, a period that included several falls along the way. Past performance is no guide to what any individual property will do, and borrowing magnifies losses as well as gains.
- An investment property earns income. National rents rose 5.7% over the 12 months to August 2026, according to Cotality. Rent helps meet the cost of holding the asset while the loan is paid down.
- Equity creates options later. As the loan falls and the value changes, equity can support a future upgrade, renovation or further purchase, subject to a lender’s assessment.
- For a home, it is security and control. No lease renewals or rent reviews, and with the right lending strategy and structure, some owners become mortgage-free in as little as 7 to 10 years. Our free Mortgage Elimination Blueprint explains the levers.
None of this depends on picking the bottom of the market. It depends on three things being true together: the asset is good quality, the repayments sit comfortably inside your cash flow with a buffer, and you can hold through further falls if they come. Take one away and the case weakens. Whether property is the right asset for you at all is a conversation for a licensed financial adviser, and the tax side belongs with your accountant.
Buying property in a falling market starts with the finance
Prices are the visible part of a falling market. The lending side is where purchases succeed or stall: what a lender will advance at today’s rates, what its valuer thinks the property is worth, how much equity is really available, and whether a pre-approval still holds.
Those are all things that can be known before an offer is made. We work with busy, higher-earning professionals to get that picture clear, alongside their accountant, adviser and solicitor.
If you would like to understand how today’s 4.60% cash rate and current valuations affect your own plans, book a complimentary 30-minute strategy call. It is about understanding your situation, your goals and what you are looking to achieve.
General information only. Not personal tax or financial advice. Tax and investment decisions should be made with your accountant and a licensed financial adviser who know your full circumstances.
Sources
- Cotality, Home Value Index, October 2026 release, results to 30 September 2026 (national values down 1.1% in September, 5.2% below the March 2026 peak; Sydney 8.6% below the February 2026 peak and down 7.0% over 12 months; capital city median days to sell 39 against 23 a year ago; national sales 19.1% lower than a year ago): discover.cotality.com
- Cotality, Monthly Housing Chart Pack, September 2026 (median vendor discount 4.2%, the highest since January 2023; clearance rates below 50% since early June; Sydney upper-quartile houses 10.7% below peak): cotality.com
- Cotality preliminary national auction clearance rate of 48.2%, first weekend of October 2026, as reported by MacroBusiness: macrobusiness.com.au
- Cotality, Home Value Index, September 2026 release, results to 31 August 2026 (national dwelling values up 66.5% over ten years; national rents up 5.7% over 12 months): discover.cotality.com
- Australian Bureau of Statistics, New home loans fall 5.4 per cent in June quarter, 14 August 2026 (investor loans 52,599, down 8.6%, largest fall since the September quarter 2022; NSW down 15.5%): abs.gov.au
- Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision, 29 September 2026 (cash rate 4.60%): rba.gov.au
- APRA, Activating debt-to-income limits as a macroprudential policy tool (serviceability buffer 3 per cent; DTI of 6 times or more capped at 20% of new lending from February 2026): apra.gov.au
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Royal Assent 26 June 2026 (negative gearing changes for established residential property purchased after 7:30pm AEST 12 May 2026, effective 1 July 2027). Your accountant can confirm how it applies to you.
- Worked examples (borrowing power, valuation shortfall, usable equity, changeover gap, repayments): Build & Protect calculations using a standard 30-year principal and interest amortisation formula. Illustrative only.
- Featured image: Paddy Pohlod on Unsplash, Unsplash License.
Build & Protect Financial Services. Credit Representative 539491 of Australian Finance Group Ltd (ACN 066 385 822), Australian Credit Licence 389087. This article is general information only and does not constitute personal financial or credit advice. Consider your own circumstances and seek advice from a licensed professional before acting.