Domain’s latest forecast splits the country in two. Sydney, Melbourne and Canberra are tipped to fall over the year to June 2027, while Brisbane, Adelaide and Perth keep growing. Here’s what the numbers say, and where the risks sit.
Domain’s FY2027 Forecast Report, finalised on 17 June 2026, describes a market in transition. Three interest rate rises in the first half of 2026 took the cash rate to 4.35 per cent, and the May budget’s changes to negative gearing and the capital gains tax discount add a structural shift on top of the cyclical one. The result isn’t a uniform slowdown. It’s a divergence, between cities, and between houses and units inside them.
Here is the headline call for combined dwelling values, using Domain’s mid-point forecasts.
| City | Houses (mid) | Units (mid) | Combined |
|---|---|---|---|
| Sydney | -5% | -1% | -3.3% |
| Melbourne | -6% | -1% | -4.4% |
| Brisbane | +5% | +7% | +5.5% |
| Adelaide | +6% | +6% | +6% |
| Perth | +7% | +9% | +7.4% |
| Canberra | -2% | -2% | -2% |
| Combined capitals | -0.5% | +1.3% | +0.1% |
The engine of the slowdown is what rates have done to borrowing capacity. Domain estimates the three rises in early 2026 stripped about 7 to 8 per cent off how much buyers can borrow, and the budget’s investor-lending changes compound it, with lenders already cutting maximum investor loan sizes.
At current mortgage rates, borrowers are being assessed at close to 10 per cent once you add APRA’s 3 percentage point serviceability buffer. That isn’t a rounding error. It’s a hard ceiling on what people can pay, and it bites hardest in the most expensive markets.
The point Domain keeps making is that higher rates don’t remove demand, they redirect it. Buyers adapt or pause: trading location for value, houses for units, aspiration for affordability. That behaviour sits underneath every forecast in the report.
Is there relief in sight?
Domain’s base case is that the cash rate has peaked at 4.35 per cent. It expects the Reserve Bank to hold through the rest of 2026 and deliver the first cut in the June quarter of 2027, as inflation gradually retreats. On Domain’s figures, headline inflation was 4.2 per cent in the year to April and the trimmed mean 3.4 per cent, both still above the 2 to 3 per cent target band.
The timing matters because the recovery depends on it. Domain expects the rest of 2026 to stay weak, with a gradual recovery from mid-2027 that is contingent on that first cut arriving on schedule. If it doesn’t, the report warns price weakness could overshoot.
The main near-term risk runs the other way. Domain notes money markets priced roughly even odds of a further rise in the second half of 2026. Another 25 basis points, taking the cash rate to 4.60 per cent, would remove about another 2.5 per cent of borrowing capacity and push prices toward the lower end of the forecast ranges.
Units overtake houses
The clearest behavioural shift in the report is the rotation from houses to units. Domain forecasts units to outperform houses across Sydney, Melbourne, Brisbane and Perth. The gap is widest in Melbourne, where units sit 5 percentage points ahead of houses, and Sydney, where the gap is 4 points.
Three forces are colliding. The expanded first-home buyer scheme reaches unit price points, especially in Sydney. Reduced borrowing capacity pushes buyers toward cheaper stock. And the house-to-unit price premium, which Domain puts at a record 111 per cent, is compressing as affordability bites.
Canberra is the deliberate exception. Higher unit supply there means houses hold up no better than units, with both forecast to ease about 2 per cent.
Records and milestones
Beneath the percentages are some genuine firsts. Domain forecasts Brisbane to overtake Sydney as Australia’s most expensive unit market. On its numbers, Brisbane’s unit median runs to between $861,000 and $893,000 over the year, ahead of Sydney’s $821,000 to $855,000.
Melbourne is heading the other way. Domain has its house median falling to between $966,000 and roughly $1.01 million, which on the mid-point would take it below $1 million for the first time since 2021.
The growth capitals set records of their own. Domain expects house prices in Brisbane, Adelaide and Perth to reach record highs, and under its upper-growth scenario, unit prices could hit records across Sydney, Brisbane, Adelaide and Perth as well.
The tax change that reshapes investor demand
The May budget proposed the biggest structural change to investment property in years. From 1 July 2027, negative gearing would apply only to newly built homes, and the 50 per cent capital gains tax discount would be replaced by an indexed cost base with a 30 per cent minimum tax rate on gains. It isn’t law yet, and anything already held is grandfathered.
Domain’s read is that this redirects investor demand rather than removing it. The incentives still favour new construction, so the effect is to pull investors away from established homes and toward new builds, which supports supply while softening demand for existing stock.
The hit won’t be even. Domain points to New South Wales, where investors make up 43.4 per cent of home lending, the highest share in the country and above its decade average of 39.2 per cent. States with the largest investor exposure face the sharpest withdrawal of demand from established housing. How investors respond, Domain says, may become one of the most important housing stories of FY27.
The growth cities carry the hidden risk
The easy story is that Brisbane, Adelaide and Perth are the safe bets. Domain’s data complicates that. Investor lending in Western Australia sits at 39.1 per cent, which is 14 percentage points above its decade average of 25.1 per cent, the widest gap of any state. Queensland and South Australia are similarly stretched, at 9.7 and 12 points above their long-run norms.
That concentration cuts both ways. The same investor demand driving the growth markets up is what leaves them exposed if sentiment sours on the tax changes. As Domain puts it, these markets are not insulated, they are exposed.
The affordability assumption doesn’t hold up either. Melbourne’s house median now sits below those of Brisbane, Adelaide and Perth, so the growth cities aren’t simply riding a cheap-entry advantage. They are growing because underlying occupier demand, fed by migration and tight rental markets, is strong enough to absorb both elevated prices and elevated investor concentration. Domain’s call is that this structural demand keeps them positive, at growth rates well below the recent boom.
Rental yields, the re-entry signal
The counterforce to watch is yield. As prices soften and rents keep rising, gross rental yields climb. Domain expects that to draw a cohort of yield-focused investors back into the market in the second half of FY27, providing a partial offset to the demand lost from the tax changes, and most of it aimed at units.
It’s a reminder that even a softening market sends signals. For income-focused buyers, the combination of lower entry prices and rising rents is the kind of setup that tends to mark a turn, well before the headline price indices confirm it.
Domain builds these forecasts from an ensemble of time-series and machine-learning models layered over its own listings data, including buyer enquiries, auction clearance rates and vacancy rates. They are forecasts, not guarantees, and the report is honest that a stickier inflation path or a sharper investor exit would move the numbers.
This article is general in nature and does not take into account your personal circumstances. It is not financial or investment advice. All price and percentage figures are Domain forecasts for the year to June 2027, drawn from its FY2027 Forecast Report, and are subject to change. Consider your own circumstances and seek professional advice before acting.
