The Commonwealth Bank said in a housing update it expects a deeper correction in the property market than anticipated, with the falls extending through to April next year.
The bank now expects national dwelling prices to fall by about nine per cent, while the average in Sydney, Melbourne, Brisbane, Adelaide and Perth will go down by 10 per cent.
"The repeated downgrades strengthen the case that market momentum has been weaker than we previously assessed. We now expect a deeper correction," the bank said.
"Even against that weaker starting point, the adjustment over the past three months has been larger and faster than we anticipated."
Sydney and Melbourne were the two weakest markets, with expected declines of 13 and 12 per cent respectively.
"We now also expect a materially weaker outlook for the mid-sized capital cities, with peak-to-trough falls of around 8 per cent in Brisbane, Perth and Adelaide," the bank said.
Expectations of another interest rate rise by the Reserve Bank after weaker than expected inflation figures have also added headwinds to the outlook.
"Our baseline forecast has national dwelling prices increasing by two per cent over 2027, but that recovery relies materially on the RBA beginning to ease monetary policy," the CBA analysis said.
It followed data from research firm Cotality showing the home value of almost all capital cities declined for the fifth month in a row.
The data firm showed the median property now costs $912,885, with 93 per cent of suburbs across Australia having a decline in value for the month.
The only capital city with a rise in prices was Darwin, at 0.6 per cent, though the median value remains the cheapest in the nation at $647,000.
The Middle East conflict, interest rate hikes and federal changes to capital gains tax and negative gearing have taken some sting out of the market for purchasers.
Sydney led the downturn for capital cities with a 1.4 per cent decrease across the month, bringing the median property price to $1.2 million.
Canberra and Melbourne values went down by 1.1 per cent, and Brisbane by one per cent.
But first home buyers trying to purchase in cheaper areas might be waiting several months for values to fall to levels they can afford, Cotality head of research Gerard Berg said.
While there were outliers in each city, there was a trend toward outer suburbs recording higher growth than their more expensive, inner city counterparts in the year to August.
Data from the Australian Bureau of Statistics also showed the number of new dwellings being approved fell by 3.6 per cent in July.
The downturn was driven by a fall in approvals for houses, down 4.2 per cent for the month after a rise in June, while all other private dwellings, such as apartments and townhouses, dropped by 0.4 per cent.
However, the bureau's head of construction statistics Daniel Rossi said the decline may not all be bad news.
"While private sector houses were down 4.2 per cent, this came off June, which had the most approved since September 2021," he said.
"In year-on-year terms, the result is 6.0 per cent higher than July 2025."
A fall in approvals would make the federal government's housing targets more difficult to achieve.
The government has set a target of 1.2 million new homes built by June 2029 but is behind schedule.
Property Council of Australia executive Matthew Kandelaars said confidence in the housing market was weakening.
"When confidence falls, fewer projects stack up and fewer homes get built," he said.
"Today's data is a reminder that confidence matters and that Australia will not improve affordability by making housing investment less attractive."
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