Australia's largest bank has revised its housing market forecasts downward, anticipating a significant correction across major capital cities as home prices continue to decline more rapidly than previously expected. The Commonwealth Bank of Australia (CBA) updated its outlook on Tuesday following new data showing that Sydney is on track to experience its steepest annual home price drop in four decades.

CBA now projects an average decline of around 10 percent in dwelling prices across the five major capitals, with a national peak-to-trough fall of approximately 9 percent. Senior economist Trent Saunders said housing market conditions had deteriorated sharply since the bank’s last forecast in early June, shortly after the federal budget announcement. “Even against that weaker starting point, the adjustment over the past three months has been larger and faster than we anticipated,” Saunders said.

The downward revision comes amid a broader combination of factors weighing on the market, including ongoing rises in interest rates and tax policy changes introduced by the Labor government in May. Treasury officials had previously estimated that these tax changes—particularly regarding capital gains and negative gearing—would reduce home price growth by just 2 percent over a couple of years.

However, former Treasury secretary Phil Gaetjens and former Treasury official Gene Tunny have expressed skepticism regarding those projections. Gaetjens described the department’s forecast as “a bit rosy” and indicated that the estimates would likely face scrutiny during parliamentary budget hearings. He noted that tax policy shifts were expected to have wide-ranging effects on investor demand and house prices. “The public service works for the government of the day so they do try to help them with these estimates – but there is a line,” Gaetjens said, adding that Treasury tends to focus on the medium term and allows some flexibility in its predictions.

Official Treasury documents had suggested the impact of the tax changes alone would lead to only a “small and temporary slowing” in house price growth. This view now appears to contrast markedly with the more immediate and sharper declines being observed in market data.

As Sydney heads toward an estimated 18.6 percent annual decline—the steepest since the early 1980s—market participants and policymakers will be closely monitoring how deeply home prices fall and how these movements align with government expectations. The evolving housing market landscape highlights the challenges in forecasting amid shifting economic conditions and policy interventions.