Capital city housing prices in Australia are forecast to fall 2.1% this year and 3.3% in 2027, ANZ Research said in a report on Monday.

The bank had previously forecast 2.8% growth in 2026 and 2.1% in 2027. It attributed the reduction in forecasts to a combination of global uncertainty, three consecutive cash rate hikes, and recent housing policy changes which have led to a sharper than expected slowdown in the housing market.

Housing prices in Sydney and Melbourne are expected to fall around 8% in 2026, with prices at a nine-month low in Sydney and a 12-month low in Melbourne. A price correction in Adelaide in South Australia is seen to lead to prices falling 6.4% in 2027.

Prices are expected to partly recover in 2028, rising 3.8%, supported by 50 basis points of forecast rate cuts from the Reserve Bank of Australia in late 2027.

Meanwhile, investor housing credit growth is expected to decline from a likely peak of more than 10% year over year in the June quarter to negative 0.8% in the first quarter of 2028, ANZ said. Total housing credit growth is expected to ease sharply to a low of 2.9% year over year in early 2028, from 7.1% in the March quarter.

Over the medium term, a structural shift is expected in the composition of housing credit, with owner-occupier credit becoming a stronger source of growth.

Total private sector credit growth should moderate to 4.2% by the March 2028 quarter from 7.8% in the March quarter before moving higher over the remainder of 2028, per the report.

Business credit growth is forecast to slow to 6.6% year over year by the end of 2027 before recovering in 2028. Personal credit growth is seen easing to a low of 1.4% year over year in early 2028, the report said.