It's only a huge problem if you are forced to sell.
Amid political warnings of a generation drowning in mortgage debt, economists studying Australia's housing markets are urging a more careful reading of the data. Price declines in Sydney and Melbourne are falling hardest on expensive enclaves and trophy properties, not the affordable entry-level suburbs where first-time buyers typically plant their roots. The distinction between where prices fall and where young buyers actually purchase turns out to be the quiet heart of this story — and for now, it offers more reassurance than the loudest voices in the room.
- Liberal politicians have spent weeks warning that first-time buyers are 'leveraged up to their eyeballs,' conjuring images of a generation trapped in homes worth less than their mortgages.
- Commonwealth Bank economists forecast Sydney and Melbourne values could fall 6 to 7 percent in 2026, feeding genuine anxiety in a market where many buyers stretch to a 5 percent deposit just to get through the door.
- But the data reveals a crucial fault line: the steepest declines are concentrated in upper-market suburbs, while the cheapest quarter of Sydney properties actually gained 0.4 percent over three months to May.
- Experts stress that negative equity, while uncomfortable, only becomes catastrophic when homeowners lose their jobs and are forced to sell — and right now, unemployment and mortgage arrears remain low.
- The sharpest watch point ahead is proposed changes to capital gains tax and negative gearing, which could dampen investor demand and begin pushing pressure downward into the very price tier where first-time buyers operate.
The warnings have been loud. Liberal politicians, including MP Andrew Hastie, have spent weeks painting a stark picture of young Australians leveraged to their limits, staring down negative equity as house prices fall across Sydney and Melbourne. But economists studying these markets closely are offering a quieter, more measured verdict.
The price declines are real — Commonwealth Bank economists forecast falls of 6 to 7 percent across both cities in 2026, driven by rising interest rates, inflation, and broader economic uncertainty. The affordability crisis is real too: saving a conventional 20 percent deposit on a median Sydney home now takes more than a decade, pushing most first-time buyers toward government guarantee schemes requiring just 5 percent down.
Yet Gerard Burg of Cotality points to data that complicates the alarm. First-time buyers, constrained by what they can afford, cluster in the bottom quarter of the market. In Sydney, the cheapest dwellings gained 0.4 percent over the three months to May; in Melbourne, they lost just 0.2 percent. The steeper declines are concentrated in expensive enclaves and upper-tier properties — not the suburbs where young buyers typically search.
Burg acknowledges an exception: buyers who purchased at the market's peak using a 5 percent deposit, particularly under Sydney's recently lifted $1.5 million price cap, could find themselves underwater. But he reframes the stakes. Negative equity is only a crisis if you are forced to sell. For those with stable employment, it is uncomfortable but survivable — and history suggests downturns tend to be relatively short.
Senior REA Group economist Angus Moore echoes this, while flagging a forward risk: proposed changes to capital gains tax and negative gearing could reduce investor demand and begin pressing prices lower at the affordable end of the market where first-time buyers actually operate. For now, low unemployment and low mortgage arrears rates provide a buffer. The real danger is not the mathematics of negative equity itself, but what happens if jobs falter — or if tax reform shifts the pressure to exactly the ground beneath first buyers' feet.
The warnings have been loud and urgent. Liberal politicians have spent weeks sounding alarms about first-time home buyers drowning in debt, their mortgages ballooning past the value of their homes. Andrew Hastie, a Liberal MP, painted a stark picture: young Australians "leveraged up to their eyeballs," staring down the barrel of negative equity as house prices fall across Sydney and Melbourne.
But the economists who study these markets closely are offering a quieter, more measured assessment. The price declines hammering Sydney and Melbourne over the past months are not hitting the suburbs where first-time buyers typically shop. They're concentrated in the expensive enclaves—the eastern suburbs, the trophy properties, the top tier of the market. This distinction matters enormously, because it means the people most vulnerable to negative equity may not be as exposed as the political rhetoric suggests.
The backdrop is real enough. Climbing inflation, rising interest rates, and economic uncertainty tied to Middle East tensions have depressed housing values in Australia's two largest cities. Commonwealth Bank economists predicted earlier this month that values could fall 6 to 7 percent across Sydney and Melbourne in 2026. The affordability crisis is also real: it takes more than a decade to save a conventional 20 percent deposit on a median Sydney home. Most first-time buyers stretch themselves thin, borrowing at the absolute limit of what lenders will allow, often relying on government guarantee schemes that let them put down just 5 percent.
Given these conditions, the fear of negative equity—owing more on a house than it's worth—is understandable. Tens of thousands of recent first-time buyers could theoretically find themselves in this position. But Gerard Burg, head of research at Cotality, points to data that complicates the alarm. First-time buyers, constrained by what they can afford, cluster in the bottom 25 percent of the market. In Sydney, the cheapest dwellings gained 0.4 percent in value over the three months to May. In Melbourne, they lost just 0.2 percent. Compare that to the upper quartile and middle of the market, where declines have been far steeper. The math is simple: if prices are falling where the wealthy buy and holding steady where first-time buyers buy, negative equity becomes a narrower problem.
Burg acknowledges the exception. Some recent purchasers who bought at the peak of the market using the 5 percent deposit scheme—particularly those who took advantage of the recently lifted $1.5 million price cap in Sydney—could find themselves underwater. But he reframes the risk. "It's only a huge problem if you are forced to sell," he said. For homeowners with stable jobs, negative equity is uncomfortable but survivable. History suggests downturns are relatively short. The real damage comes when people lose income and can't service their mortgages.
Angus Moore, a senior economist at REA Group, echoes this view. The price falls have been concentrated in expensive suburbs—not the typical hunting grounds for first-time buyers. He adds another wrinkle: proposed changes to capital gains tax and negative gearing in the recent budget could reduce investor demand and further pressure prices at the lower end. But he also notes the protective factors. Unemployment remains very low. Mortgage arrears rates are quite low. The risk of widespread default is not high.
What emerges from this analysis is a story more nuanced than the political warnings suggest. Yes, some first-time buyers could face negative equity. Yes, the housing market is under stress. But the concentration of price falls in the luxury market means the people most often described as vulnerable—young Australians stretching to buy their first home—may be largely insulated from the worst outcomes. The real risk lies not in the mathematics of negative equity itself, but in what happens if employment falters or if proposed tax changes further squeeze the lower end of the market where first-time buyers actually operate.
Citações Notáveis
It's only a huge problem if you are forced to sell. For homeowners with stable jobs, negative equity is uncomfortable but survivable.— Gerard Burg, head of research at Cotality
A more important reason to think about negative equity is that it can limit people's options. When people are having difficulty with their mortgages, that's when you can run into trouble.— Angus Moore, senior economist at REA Group
A Conversa do Hearth Outra perspectiva sobre a história
Why are politicians so focused on negative equity if it's mostly hitting expensive suburbs?
Because it's a visceral fear. The idea that you owe more than your house is worth taps into something primal about debt and loss. It's politically powerful even if the data suggests it's not the main threat to first-time buyers.
But the data does show some people could be in negative equity, right?
Yes, particularly those who bought at the peak using the 5% deposit scheme. But the economists are making a distinction between negative equity existing and negative equity being a crisis. One is a fact; the other depends on whether you can keep paying your mortgage.
So employment is the real story here?
Exactly. If you have a job, you can weather negative equity. You just can't sell or refinance easily. But if you lose your job, that's when it becomes a genuine emergency.
What about those proposed tax changes on capital gains and negative gearing?
That's the wildcard. If fewer investors can claim deductions, they might exit the market or stop buying. That could push prices down further at the lower end, where first-time buyers actually operate.
So the real risk isn't negative equity—it's that prices keep falling where first-time buyers are buying?
That's what the economists seem to be saying. Negative equity is a symptom. The underlying condition is whether the market stabilizes or continues to deteriorate.