Key takeaways
First home buyers are stepping back, not stepping in. Loan applications from first-home buyers have fallen more than 20% since the budget, despite policies designed to help them enter the market.
Uncertainty is weighing on buyers and investors. Higher interest rates, reduced borrowing capacity and confusion over the new tax rules have prompted many buyers to delay their decisions.
Slower demand is cooling the property market. Weak auction clearance rates and softer prices in Sydney and Melbourne suggest buyers and sellers remain far apart on expectations.
Housing policy creates winners and losers. While reduced investor competition may eventually benefit some buyers, falling prices could leave recent purchasers facing negative equity and greater financial pressure.
Long-term strategy matters more than market timing. Successful investors focus on buying quality assets with strong fundamentals and avoid making emotional decisions based on short-term policy changes or headlines.
Something strange is happening in the first home buyer market right now, and it's the exact opposite of what Treasurer Jim Chalmers promised when he handed down his budget back in May.
Instead of young Australians rushing through the door that negative gearing and capital gains tax changes were supposed to open for them, the data shows they're backing away from the market altogether.
I'm always sceptical when governments promise a tax tweak will fix housing affordability, and this is turning into a textbook case of good intentions producing the opposite result.
What the numbers actually show
Aussie Home Loans, one of the country's largest mortgage brokers, reports that first home buyer loan lodgements have fallen more than 20% since the budget changes were announced.
Investor loan applications have fallen even further, by around 25%, and Westpac reported a similar 20% drop in investor applications in just the first three weeks after the announcement.
Now that's more than a small wobble. It’s a retreat from the market by exactly the two groups the budget was designed to move, first home buyers in one direction and investors in the other.
The brokers putting the numbers together say the pullback comes down to a combination of three things. Uncertainty about the new tax settings, reduced borrowing power after a run of interest rate rises, and plain exhaustion from a macro environment that keeps shifting under buyers' feet.
Meanwhile the property market has gone quiet
Auction clearance rates tell the same story. Sydney has been sitting around the high 40% to low 50% range most weekends since the budget, levels not seen since the depths of the pandemic in 2020, and Melbourne hasn't been much stronger.
A healthy, balanced market usually clears somewhere around 60%, so anything in the high 40s tells you buyers and sellers are a long way apart on price.
Sydney and Melbourne values have both slipped from their recent peaks too, as part of a cyclical correction after a number of years of strong property growth, and it's likely our housing markets will languish or fall a bit further for the rest of the year.
Why this matters more than the headline suggests
Here's the part I think most commentary is missing. The government's entire pitch was that fewer investors buying established homes would mean less competition and therefore more opportunity for first home buyers.
While on paper that logic holds up, the theory only works if first home buyers actually step into the gap investors leave behind, and right now they're not doing that.
Three rate rises this year have eaten into borrowing capacity at the same time as the budget, so a first home buyer with the same deposit and the same income can borrow noticeably less than they could twelve months ago.
Add a wave of uncertainty about how the new rules will actually apply, whether prices are going to keep falling, and whether jobs are secure in an economy increasingly rattled by AI disruption, and you get a group of buyers who would rather sit on their hands than commit to what's still the biggest financial decision of their lives.
- Also read:Sydney property market forecast for 2026 and 2027 | Why the short-term softness is a long-term opportunity
- Also read:Melbourne property market forecast for 2026 & 2027 | Separating the fundamentals from the sentiment
- Also read:Latest Property Price Forecasts. Australian Property Market Outlook 2026-2027: Navigating a Market Correction
- Also read:Falling Home Prices Accelerate Over June | Latest stats from Dr. Andrew Wilson
- Also read:Diversification in wealth creation – and if so, when?
The zero sum game nobody talks about
Of course, property policy is rarely as simple as governments make it sound, and this budget is a good example of why.
When you create a policy winner, in this case future first home buyers who might eventually buy at lower prices with less investor competition, you also create a policy loser, namely every existing homeowner who assumed their home equity was locked in.
If prices keep drifting lower through the back half of this year, plenty of recent first home buyers who stretched themselves in 2024 and 2025 could find themselves staring at negative equity, and highly leveraged owners could start feeling real mortgage stress.
That's not the headline Treasury wants heading into an election in 2028, and it's certainly not the headline first home buyers were promised either.
My take as someone who has watched a lot of these cycles
Having invested for a number of decades now, one thing I've learned is that markets rarely respond the way politicians expect them to, because policy changes interact with sentiment, credit conditions and confidence in ways that are almost impossible to predict from Canberra.
Right now we've got a genuine confidence vacuum.
Rates have moved up three times this year, tax settings have changed in a way even seasoned investors are still getting their heads around, and everyday Australians are hearing endless mixed messages in the media about whether now is the time to buy or the time to wait.
My long held view is that trying to time these shifts perfectly is a fool's game, whether you're an investor or a first home buyer.
What matters far more is buying a quality, investment grade asset in a location with strong long term fundamentals, and being financially prepared enough that short term volatility doesn't force your hand.
For first home buyers reading this and wondering whether to wait for prices to fall further, I'd gently point out that trying to pick the exact bottom of a cycle is something even professional investors get wrong most of the time. Locking in the right property in the right location matters far more than the timing of your entry.
For existing investors, this is a moment to review your structure and your buffers rather than react emotionally to headlines, because the rules around negative gearing and CGT have genuinely changed and your strategy needs to reflect that, not the environment you originally bought into.
Either way, this is exactly the kind of environment where having a clear long term plan, rather than reacting to whatever the latest budget or rate decision throws at you, separates investors who build wealth over decades from those who get whipsawed by every twist in the news cycle.
If you'd like to talk through your own situation, why not have a chat with one of the wealth strategists at Metropole? Click here now and organise a time to see how the current market situation affects you personally.
