New modelling from Cotality puts numbers on something buyers and mortgage holders have been asking quietly for months: if prices keep falling, how far back does each city go?
The short answer is that mid-sized capitals built enough of a buffer during the pandemic run that a 20% drop still leaves them well ahead of pre-COVID values. Melbourne didn’t, and Sydney sits somewhere in between.
For anyone who bought at the peak or refinanced into a higher valuation, the city matters more than the national headline.
The numbers that matter
Cotality modelled four scenarios, 5%, 10%, 15% and 20% declines from peak dwelling values, across the major capitals. The results show a wide spread in resilience.
Perth recorded the strongest growth cycle of any major city. Even under a 20% fall from the peak, median dwelling values would only revert to roughly April 2025 levels. That’s a twelve-month rollback after a five-year surge.
Brisbane could absorb the same 20% correction and land around August 2024 values. Adelaide would fall back to approximately April 2024.
Sydney’s market, already more than 5% below its peak, would return to around May 2021 levels under a 20% scenario. That wipes three years of gains but leaves the pandemic run intact.
Melbourne peaked at $840,000 in November 2025 after recording very little growth over the past five years. A decline beyond 10% would return values to pre-pandemic levels. A 20% fall erases the entire COVID bump.
Why the gap exists
Mid-sized markets ran harder and longer. Perth, Brisbane and Adelaide saw sustained price growth through to mid-2025, driven by interstate migration, relative affordability compared to Sydney and Melbourne, and yield compression as investors rotated capital.
Melbourne’s market stalled earlier. Affordability constraints, higher vacancy rates in the inner city and weaker interstate migration limited upside. The result is a shallow buffer.
Sydney sits in the middle. Strong early pandemic growth gave it a cushion, but momentum slowed from late 2023 as serviceability limits bit harder at the top end of the market.
The same percentage fall does different damage depending on what came before it.
What’s driving the downturn
Demand is deteriorating across all capitals. The combination is familiar: affordability pressure, mortgage serviceability constraints tightened after the rate cycle, cost-of-living erosion, weaker consumer confidence and reduced investor activity following federal budget changes to depreciation and negative gearing.
Brisbane and Adelaide entered modest downturns over the past two months. Sydney and Melbourne are already more than 5% below their respective peaks. Perth is holding better but softening at the edges.
Supply and demand conditions still differ by city. Perth’s rental vacancy remains tight. Melbourne’s has loosened. That gap will influence how far each market falls and how quickly it stabilises.
Key numbers
- Melbourne’s dwelling values peaked at $840,000 in November 2025 with minimal five-year growth
- Perth under a 20% fall scenario would only revert to April 2025 levels after the strongest capital city growth cycle
- Brisbane could absorb a 20% correction and still sit around August 2024 values
- Adelaide would fall back to approximately April 2024 under the same 20% scenario
- Sydney and Melbourne are already more than 5% below their respective peaks
Who this matters for
Anyone who bought at or near the peak needs to know their city’s buffer. A borrower who purchased in Melbourne in late 2024 is closer to negative equity under a 15% fall than someone who bought in Perth at the same time.
Investors with material equity can ride out a correction. Those who stretched serviceability or bought with thin deposits face a different set of risks, particularly if they need to sell or refinance in the next 18 months.
Sellers in Melbourne have less room to hold out for a higher price. Buyers in Perth and Brisbane still face elevated entry points even after recent falls, but the risk of a deep undershoot is lower.
Mortgage exposure varies significantly by lender, and banks with concentrated books in Melbourne or higher loan-to-value portfolios will be watching these thresholds closely.
Downside scenarios and upside triggers
A 20% fall is not the base case, it’s the stress scenario. The path from here depends on three variables: how long rates stay elevated, whether rental markets tighten or loosen further, and what happens to net migration over the next twelve months.
If rates drop sooner than the market expects and migration holds near current levels, most capitals stabilise before hitting the 10% mark. Borrowers regain serviceability headroom, investors return, and the downturn stays shallow.
If rates stay higher for longer and migration falls sharply, the 15% to 20% scenarios come into play. Melbourne reaches pre-pandemic values. Sydney gives back three years. Perth, Brisbane and Adelaide lose two years of gains but stay well ahead of 2020 levels.
The wildcard is forced sales. If unemployment rises materially or refinancing cliff issues emerge, distressed volume could accelerate declines beyond what demand weakness alone would produce.
What happens next
The next four to six months will clarify which scenario is playing out. Watch auction clearance rates, days on market and the gap between list prices and sale prices across each city.
Melbourne’s trajectory is the clearest signal. If it falls through the 10% threshold, pre-pandemic values are back in play and the broader market will reprice risk.
Perth and Brisbane have time and buffer, but both are softening. If either accelerates downward, it signals demand destruction is spreading beyond the usual suspects.
Consumer sentiment has crashed to historic lows, but spending has held up so far. If that divergence closes and discretionary spending collapses, housing will follow.
For borrowers sitting on recent purchases, the practical question is whether you can hold through a two-year trough without forced selling. For investors, it’s whether your yield and cashflow buffer can absorb a 10% to 15% drawdown without triggering a margin call or refinancing issue.
If you bought in the past 18 months and your city has a thin buffer, pressure-test your position now, run the numbers on a 15% fall and see where your equity and serviceability land. Pre-sales have frozen across multiple projects as developers wait for clarity, which tells you the industry is already pricing in a deeper correction than the headlines suggest.
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General info, not financial advice.
