The Forecasts Say Up 7%, The Data Says Down 2.6%: Who Do You Believe?

The Short Answer (July 2026)

In January, KPMG forecast Melbourne house prices to rise 6.8% this year, tipping us as one of the stronger capitals. Six months later, Melbourne values are down 2.6% over the June quarter and the big banks have all cut their numbers, with Westpac now expecting Sydney and Melbourne to record outright declines for the year. That is not a rounding error. It is a genuine split between where the forecasters thought 2026 was going and where it has actually gone. If you are buying or selling in the east or south-east, the useful move is not picking a side. It is understanding why the numbers diverged and what that means for your next six months.

What the Optimists Said

KPMG's Residential Property Outlook, released in January, had Melbourne houses rising 6.8% and units 7.3% across 2026, with more growth pencilled in for 2027. Their case was reasonable: Melbourne's price base is cheaper than Sydney, Brisbane and Adelaide after years of underperformance, genuine owner-occupier demand was returning, and cheaper cities tend to catch up when buyers get priced out elsewhere.

None of that logic was wrong. The problem is what happened after the forecast was printed.

What Actually Happened

Three rate rises landed between February and May, taking the cash rate from 3.60% to 4.35%, where the RBA held it in June. Borrowing capacity shrank, confidence went with it, and the data turned.

The national Home Value Index fell 0.4% in June, the largest monthly fall since December 2022. Capital city values dropped 1.3% over the June quarter, with Sydney down 3.2% and Melbourne down 2.6% leading the retreat. Auction clearance rates have sat below 50% since late May, and capital city home sales are running 16.2% below this time last year.

The banks have adjusted accordingly. ANZ has cut its capital city growth forecast to 2.8% for 2026. Westpac expects prices to stall flat nationally, with Sydney and Melbourne going backwards. CBA is in a similar spot: roughly flat this year, a modest recovery of around 3% in 2027. Most economists now expect the first rate cut around the middle of 2027, not this year.

Why the Forecasters Got It Wrong (And Why It Matters Less Than You Think)

The January forecasts were built on rates having peaked. They had not. Once the RBA started hiking again, every growth number built on cheaper money went stale. That is the whole story of the split, and it carries a lesson worth keeping: a property forecast is a set of assumptions with a percentage attached. When the assumptions break, so does the number.

Which is why the more useful question is not who will be right about 2026, but what they are all saying about what comes next. And on that, the forecasters largely agree. ANZ expects Sydney and Melbourne to lead the recovery once rates start falling in 2027, just as Perth, Adelaide and Brisbane run out of steam after several strong years. Domain's forecasts land in the same place, with a gradual recovery expected from around mid-2027. Even the bearish numbers frame this as a correction inside a market still short of homes, not a structural fall.

What It Means if You Are Buying

This is the window the January optimists accidentally described. Melbourne's relative cheapness against the other capitals has not gone anywhere; if anything, a 2.6% quarterly fall has widened it. If the consensus is right that Melbourne leads the next upswing when rates fall, then a softer 2026 is the entry point, not the warning sign.

Two practical notes. First, the falls are not evenly spread. Properties below the median are holding their value far better than the top end, so do not expect discounts on well-priced family homes in tightly held streets. Second, with clearance rates under 50%, your leverage is real. Listings past their first few weeks are where vendor expectations have softened, and finance-ready buyers are getting terms that did not exist a year ago.

What It Means if You Are Selling

Do not anchor to January's forecasts, and do not let a buyer anchor you to the scariest headline either. The market that exists today is one where honestly priced, well-presented homes still sell, and everything else sits. The 16.2% drop in sales volumes is mostly campaigns that were priced for the market vendors wished they had.

If your move is a sell-and-buy within the same market, the forecast split matters even less. Both sides of your transaction are moving together. Waiting for the 2027 recovery to sell means buying in that same recovery, likely with more competition.

Director's Tip: When the forecasts disagree this loudly, ignore the percentages and watch the behaviour. Serious buyers are still turning up to well-priced homes in the east and south-east every week. That tells you more about your sale than any bank's revised number.

FAQ: What We Are Being Asked This Week

Q: So is KPMG just wrong?

Their January numbers assumed rates had peaked, and three hikes later those numbers are stranded. Their underlying logic about Melbourne's value relative to other capitals still stands, which is why even the bearish forecasters expect Melbourne to lead the recovery.

Q: Should I wait until the forecasts agree before acting?

They will only agree once the market has already moved, and by then the conditions that favour you today, softer prices for buyers and less competition among quality listings for sellers, will be gone.

Q: How far could Melbourne fall from here?

Nobody can give you that number honestly. What the data shows is a moderate correction concentrated at the upper end, with below-median homes holding firm and a supply shortage still sitting underneath the whole market.

Q: When do rates actually come down?

Most economists have shifted their expectation to around mid-2027. Treat anything more specific than that as a guess.

Bottom Line

The gap between January's forecasts and July's data is not a reason to freeze. It is a reminder that forecasts are assumptions, and the assumptions broke when rates kept rising. What the forecasters still agree on is the shape of what comes next: Melbourne is positioned to lead the recovery when rates fall, and the current softness is the lead-up, not the story. Whoever uses this stretch to get prepared, on either side of the transaction, is the one the 2027 headlines will have been kind to.

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