The combination of restrictive interest rates, recent tax policy changes, and global uncertainty have dampened sentiment in Australia's housing market, ANZ Research said in a note on Tuesday.

Housing prices in Sydney and Melbourne declined slightly more than forecasted, and prices in Brisbane and Perth started falling earlier than expected since June.

Auction clearance rates are "very soft," coming in below 50% for the past 10 weeks across the capitals of Australian states and territories, ANZ noted. The bank now expects capital city housing prices to fall 4.3% in 2026 and 3.4% in 2027, compared with its previously forecasted declines of 2.1% in 2026 and 3.3% in 2027.

This would result in a peak-to-trough decline of almost 11% across the capital cities, ANZ said.

Housing credit growth is expected to moderate to 2.2% year over year by early 2028, with annual growth in investor credit turning negative by late 2027, per the report.