House prices have fallen in every capital city this quarter, and the headlines aren’t pretty. But look a little closer and there’s a more interesting story. We now have a two-tier property market, where premium homes have fallen much further than more affordable ones. For some buyers, especially families looking to upgrade, that opens a real window.
What the Latest Numbers Show
Domain’s September quarter report found house prices fell 4.7% nationally, the largest quarterly fall on record. Sydney houses also fell 4.7%, the city’s biggest quarterly drop in four years (ABC News).
The falls haven’t been even, though. Cotality data shows the most valuable quarter of Sydney homes fell more than twice as much as the least valuable quarter (ABC News). By August, upper-quartile Sydney house values were 10.7% below their peak. The gap between the top and bottom of the market had reached 5.3 percentage points (Cotality).
Rising interest rates, cost of living pressure and weaker confidence have all played a part. With higher repayments, fewer buyers can stretch to the top end, so demand there has cooled the most.
Why a Two-Tier Property Market Helps Upgraders
If you’re selling a more affordable home and buying a more premium one, what really matters is the gap between the two. In a two-tier property market, that gap gets smaller. You sell in the steadier part of the market and buy in the softer part.
Here’s a simple, hypothetical example. The numbers are rounded for illustration and aren’t a forecast.
| At the peak | After falls | Change | |
|---|---|---|---|
| Your current home (falls 5%) | $1,300,000 | $1,235,000 | down $65,000 |
| The premium home you want (falls 10%) | $2,200,000 | $1,980,000 | down $220,000 |
| The gap to bridge | $900,000 | $745,000 | $155,000 smaller |
In this example, your home is worth less than it was at the peak. However, the home you want has fallen much further. As a result, the step up costs about $155,000 less, which means a smaller loan and lower repayments.
Who Is Most Likely to Benefit
Families Ready for More Space
If you’ve outgrown a unit, townhouse or smaller house, the homes you’ve been watching may now be closer to reach. That might mean an extra bedroom, a bigger yard, or a move to a suburb that felt out of range a year ago.
Owners With Solid Equity
If you bought some years ago, you probably still have good equity, even after recent falls. That equity is what funds the next step. See can I refinance if my house has gone up in value for how lenders look at it.
Well-Prepared Buyers
Domain’s chief economist says “the balance of power has shifted towards buyers” (ABC News). Homes are also taking longer to sell, with a median of 39 days on market in the capitals, up from 28 a year earlier (Cotality). More time and less competition give organised buyers room to negotiate and do proper checks.
First Home Buyers, With Realistic Expectations
The cheaper end of the market has held up better, so first home buyers shouldn’t expect big discounts. Still, there’s less urgency, fewer bidders at auctions and more time to decide. That’s a calmer place to buy your first home.
The Realistic Side
A softer market brings opportunities, but it pays to go in with your eyes open.
- Borrowing capacity is tighter. Higher rates mean lenders assess repayments at a higher level, so you may be able to borrow less than a year ago.
- Prices may fall further. One economist quoted by the ABC expects the downturn to last longer than many people think, probably until rates are cut again.
- You also have a home to sell. Buying first and selling later carries more risk when prices are falling.
- It’s not a good time to sell at the top end. If you plan to downsize from a premium home, the gap works against you.
- Every suburb is different. These are city-wide averages, and your street may not follow them.
Our posts on why borrowing capacity has reduced and the September 2026 rate rise explain more about how rates affect what you can borrow.
How to Plan an Upgrade in This Market
- Get your borrowing capacity checked first. Know your limit before you start inspecting. Different banks give different borrowing capacities, so it pays to compare.
- Get pre-approval. It shows sellers you’re serious and helps you move quickly. See how long pre-approval lasts.
- Get a realistic price for your current home. Base your plans on recent sales nearby, not last year’s peak.
- Decide whether to buy first or sell first. Our guide to buying first or selling first covers the pros and cons.
- Look at bridging finance if you need it. Bridging loans can cover the gap if you buy before you sell.
- Think long term. Buy a home you’re happy to live in for years, rather than trying to time the bottom. Moneysmart has a useful guide to buying a home.
Our next home loans page explains how we help people upgrade, from the first numbers to settlement. Upgrading in the Shire? See our mortgage broker Sutherland Shire page.
Two-Tier Property Market: FAQs
The Market
It’s a market where different price ranges move in different ways. Right now, premium homes have fallen much further than more affordable homes, particularly in Sydney and Melbourne.
No one knows for sure. At least one economist expects the downturn to last for some time, possibly until interest rates are cut. That’s why it’s better to buy a home that suits you long term than to try to time the bottom.
Upgrading
For many upgraders the gap between their current home and a premium home has narrowed. Whether it’s right for you depends on your borrowing capacity, your equity and how long you plan to stay.
Selling first usually carries less risk when prices are falling, because you know what you have to spend. Buying first can work with bridging finance, but you need a clear plan for selling.
If you’re thinking about stepping up to a bigger or more premium home, I’m happy to run the numbers with you. We’ll look at your borrowing capacity, your equity and the gap you need to bridge, so you know exactly where you stand.
Published 22 October 2026, based on Domain and Cotality data reported at that date. The example is hypothetical and is not a forecast. The information on this page is general in nature and does not take into account your objectives, financial situation or needs. Lending criteria, fees and charges apply. Consider whether it is appropriate for you and speak to us for advice specific to your situation.
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