Property prices in Sydney and Melbourne are forecast to decline through 2026, but experts say this is unlikely to significantly improve housing affordability for many Australians.

Analysis from Canstar, based on forecasts from Westpac and housing data from Cotality, indicates that borrowing capacity has fallen faster than property prices.In Sydney, the median house price is expected to fall by nearly $30,000 by the end of 2026, while Melbourne could see a decline of about $18,000.However, average-income borrowers have already lost substantially more purchasing power due to higher interest rates and stricter lending conditions.

A single person earning the average full-time wage has seen their maximum borrowing capacity shrink by around $35,800, while couples on average incomes have lost more than $71,000 in borrowing power.

Economists argue that even if prices soften further, the reductions are too small relative to overall housing costs to make home ownership genuinely affordable, particularly in Sydney where median house prices remain above $1.6 million.

Buyer advocates report that many prospective purchasers have had their approved budgets reduced despite lower asking prices, leaving them unable to compete effectively in the market.Rising living costs, inflation concerns and weak consumer confidence are also affecting purchasing decisions.

The federal government has defended its housing policies, arguing that reforms should be judged over the medium and long term rather than on short-term market movements.

Housing Minister Chris Bowen said the government's package of measures aims to improve access to home ownership, although some critics warn that recent buyers could face negative equity if prices fall.Meanwhile, housing markets in Brisbane and Perth continue to strengthen.

Strong population growth, housing shortages and infrastructure pressures are expected to push prices higher in those cities, contrasting with the softer conditions forecast for Sydney and Melbourne.