NAB Forecasts an 11% Peak-to-Trough Fall and the Capitals Are 6.4% Down. Adelaide Has Two-Thirds of Its Decline Still Ahead — Melbourne a Third

NAB has cut its 2026 house price forecast to −8% and now expects a peak-to-trough fall of around 11%, with a floor in the second quarter of 2027. The capitals are already 6.4% below their March peak. The gap between those two numbers is the part of this story that lands on your existing loan book.

What NAB actually changed

NAB’s Housing Monitor for October 2026 did something more useful for brokers than confirm that prices are falling. It told you how much of the fall is already behind you — and, by implication, how much is not.

The bank now expects dwelling prices across the eight capital cities to fall 8% over 2026, revised from a 6% decline, and to record a peak-to-trough fall of around 11%, finding a floor in the second quarter of 2027. Combined capital city prices fell 1.2% month on month in September, the sixth consecutive monthly decline, and are now 6.4% below their March 2026 peak.

The downgrade was driven by the mid-sized capitals, not the two biggest markets. NAB’s reasoning is explicit: “Given the sharper slowdown across the mid-sized capitals, we have lowered our house price forecasts.”

The recorded declines, measured from each city’s recent cyclical peak, now stand at:

• Sydney — 8.6% below peak, and still falling at pace, down another 1.4% in September
• Melbourne — 7.2% below peak, with the pace of falls moderating to 0.7% in September
• Perth — 6.0% below peak
• Brisbane — 5.4% below peak
• Adelaide — 2.9% below peak

The mid-sized capitals each fell between 1% and 1.5% in September. Unit prices were 0.8% lower. Nationally, dwelling prices fell 1.1% for the month to sit unchanged over the year, with the median dwelling value at roughly $900,000. NAB’s forecast peak-to-trough declines by city have Sydney leading at about 14%, followed by about 11% each in Melbourne, Brisbane and Perth, and 8.5% in Adelaide.

The arithmetic the release doesn’t run

Subtract what has been recorded from what is forecast and the picture rearranges itself.

Two things stand out, and neither is the obvious one.

First, Melbourne is the most advanced through its downturn, with about two-thirds of its forecast fall already recorded and the monthly pace easing. The market brokers have spent two years describing as the problem child is, on these numbers, closest to finding its floor.

Second, Adelaide has only about a third of its forecast decline behind it. Brisbane has about half. These are the markets that held up longest, which means their clients are the least conditioned to the conversation and their files were written on the most recent — and therefore highest — valuations.

The cohort that matters, identified by NAB itself

The Housing Monitor contains one line in its housing lending section that is worth more to a broker than the headline forecast. NAB notes that only a small share of new housing lending is at high debt-to-income or loan-to-valuation ratios, but adds: “owner-occupied loans with LVRs ≥90% ticked up late last year, alongside the 5% deposit First Home Guarantee scheme.”

Late last year is the run-up to a March 2026 peak. So the cohort with the thinnest equity buffer is also, disproportionately, the cohort that settled closest to the top of the market. That is not a coincidence you need a model to see — it is simply when high-LVR volume was written.

NAB also reports that housing loan arrears remain at 1% of outstanding loans, though they have edged higher for low-documentation lending. Arrears are not the pressure point here. Equity is.

What a further fall does to a file written at the peak

The mechanics are unforgiving and easy to run. If a security tracks its city index and you set aside principal repayments, the current LVR of a loan written at the peak is simply the original LVR divided by one minus the decline.

The row that should change how you plan your week is the first one. A file written at 80% LVR at the peak — a file nobody flagged, with no LMI, no scheme guarantee and no exception — sits near 90% at NAB’s national trough, and above 90% in a Sydney postcode on NAB’s city forecast. That is the threshold at which product eligibility, pricing tiers and insurer appetite start to move against your client.

The 90% and 95% rows are the ones brokers already expect to be difficult. The 80% row is the one that arrives unannounced in a refinance or repricing conversation.

Why the exit is narrower this cycle

Falling equity would matter less if refinancing were easy. It is not, and the same NAB document shows why the market is thinning out.

The value of new housing loan commitments fell 5.2% quarter on quarter in the June quarter, led by a 10.2% decline in investor commitments, with owner-occupier commitments down 1.9%. Median days on market has risen to 41, the highest since late 2020, alongside falling sales volumes. A client who needs to sell to resolve a position is looking at a slower market than at any point in five years.

Borrowing capacity has moved against them too. Following the RBA’s increase to a 4.60% cash rate effective 30 September — the fourth rise of 2026, after increases in February, March and May — Cotality’s Tim Lawless wrote on 29 September that “the cumulative impact of the four rate hikes since February has reduced borrowing capacity by almost $90,000,” which Cotality put at around a 9% decline in purchasing power on a median household income. Cotality did not publish the full methodology, so treat it as that firm’s estimate rather than an established figure.

So the squeeze is two-sided: the security is worth less, and the amount any lender will advance against it has fallen. A client who could have refinanced out of a problem in 2025 may now fail on both the valuation and the servicing side of the same application.

One partial offset for investor clients: advertised rents are still growing, though the pace has moderated to a six-month annualised rate of 5.0%, led by Sydney, while the rental vacancy rate continues to edge higher, particularly in Western Australia.

What to review this week: a back-book equity triage

This is a database exercise, not a market view. You do not need to agree with NAB’s forecast to find it useful — you need a list, ranked by exposure.

1. Pull every file settled between roughly September 2025 and April 2026. That window brackets the high-LVR uptick NAB identifies and the March 2026 peak. Settlement date is the single best proxy you have for “bought near the top”.
2. Segment by LVR at settlement, then by city. Three buckets is enough: 85% and above, 80% to 85%, and below 80%. Cross that with state. An Adelaide or Brisbane file at 85% now ranks above a Melbourne file at the same LVR, because more of the forecast decline is still ahead of it.
3. Add the loan purpose and product. Interest-only files have not amortised their way to a better position. Low-doc files sit in the one category where NAB says arrears have edged higher. Both belong at the top of the list.
4. Order fresh valuations on the top bucket before you need them. An upfront valuation obtained now, while you are not under application pressure, tells you whether a client has a problem in three months’ time or does not. It is far cheaper to know early.
5. Identify who needs something in the next 12 months. A fixed rate expiring, an interest-only term ending, a construction facility converting, a scheme-supported purchase approaching a review point. Falling equity only becomes a live problem when the client needs the file reassessed.
6. Check which of your lenders will reprice or restructure without a full reassessment. Where a variation can be handled inside the existing lender without a new valuation or a fresh servicing test, that is often the cleanest route for a client whose LVR has drifted. Your aggregator’s policy desk will know which lenders currently do this and on what terms — confirm it rather than assuming last year’s answer still holds.
7. Make the call before the client reads a headline. A broker who rings in October with a position, a number and an option is doing something materially different from one who returns a call in February.

Having the conversation without overselling the risk

A forecast is a forecast. NAB has already revised this one once, from 6% to 8% for the calendar year, and the floor it nominates is three quarters away. The honest framing with a client is conditional, not predictive: here is where your loan sits today, here is what a further fall of the size NAB is forecasting would do to it, and here are the options that are open now and may not be open later.

That framing also happens to be the defensible one. Broker recommendations are governed by best interests duty obligations, and a documented, dated review of a client’s position — what you looked at, what you found, what you presented and what the client chose — is the record that demonstrates the work was done. Nothing here is advice on what your obligations require in a specific case; your licensee and compliance team are the right people to confirm how a proactive review programme should be documented in your business.

What to watch next

Three markers will tell you whether the forecast is holding. The monthly combined-capitals print, which has now fallen six months in a row and would need to flatten well before the second quarter of 2027 for NAB’s trough to arrive on schedule. The mid-sized capitals specifically, since they drove this revision and would drive the next one. And days on market, at 41 and rising, which is the cleanest single read on whether sellers are meeting the market or waiting it out.

On the supply side, the stock of dwellings under construction remains elevated at around 250,000, roughly 40% above the 2010–2019 average, with detached house approvals 18% higher over the year in August. That pipeline keeps completing into a falling market, which matters most for clients with construction or off-the-plan exposure.

Sources: NAB Economics and Markets Research, Housing Monitor, October 2026 — forecasts, recorded declines, days on market, approvals, construction pipeline, rents, housing lending and LVR commentary. Reserve Bank of Australia, cash rate target statistics — cash rate of 4.60% effective 30 September 2026 and the 2026 sequence of increases. Cotality, Tim Lawless, 29 September 2026 — borrowing capacity estimate. Figures described as implied remainders, shares of decline recorded, or illustrative LVRs are arithmetic by The Broker Times from the sourced inputs and are labelled as such.