Australia’s housing market is showing clearer signs of a downturn, but falling property prices are doing little to resolve the country’s deeper affordability crisis.

Cotality’s latest data shows national home values fell 0.7 per cent in July, the largest monthly decline since December 2022. Sydney and Melbourne led the decline, falling 1.4 per cent and 1.2 per cent respectively, while Brisbane and Adelaide also recorded falls of 0.6 per cent and 0.2 per cent.

The weakness has prompted analysts to model significantly larger potential declines. Four scenarios 5, 10, 15 and 20 per cent show how different levels of correction could affect capital-city property values. Melbourne has one of the smallest buffers after years of subdued growth, while Perth, Brisbane and Adelaide accumulated much larger gains during the housing boom.

Yet a property downturn does not necessarily mean homes are suddenly affordable for first-home buyers.

Cotality estimates Australians now need more than 11 years to save for a median-priced dwelling, while renters are spending about one-third of household income on rent. Tight rental vacancies and limited new listings are adding further pressure.

There is also a striking divide within the market. The initial price declines have largely occurred among higher-value properties, while lower-priced homes those most likely to attract first-home buyers have continued rising in some cities.

At the same time, older Australians considering downsizing face stamp duty, selling costs and financing barriers. More than half of Australians aged over 55 are either already downsized or open to doing so, potentially freeing larger homes for younger families.

ANZ expects a deeper correction, forecasting national prices could fall 4.3 per cent this year and 3.4 per cent in 2027, with Sydney and Melbourne facing larger declines.

The emerging picture is therefore more complicated than a simple housing crash: Australia may be entering a period of falling prices, but the affordability crisis is far from over.