Australia's housing downturn is expected to become a bigger drag on the economy, with ANZ Bank forecasting a 10.6% peak-to-trough fall in capital city home values during 2026 and 2027 as the Reserve Bank of Australia kept its cash rate at 4.35%. The RBA said home prices have already fallen 1.6% from their March peak and are assumed to keep declining gradually, reflecting earlier monetary tightening, tax policy changes and the broader economic backdrop. ANZ economists Madeline Dunk and Adam Boyton said restrictive interest rates, recent tax changes and global uncertainty have weakened market sentiment, with Sydney seen leading the decline through a 14.5% drop that would erase about A$190,000 from median dwelling values. The central bank expects the housing slump to hit growth through weaker household wealth, softer consumption, lower property turnover and reduced incentives to build, although a large pipeline of unfinished projects should limit the construction impact versus earlier cycles. GDP growth is now seen easing below 2% in 2026, while inflation is forecast to return to the RBA's 2% to 3% target band, with both headline and underlying inflation reaching 2.5% by early 2028. At the same time, the bank upgraded growth forecasts for the 2026/27 and 2027/28 financial years to 1.5% and 1.6%, helped partly by stronger data center investment tied to AI infrastructure, even as it cut its 2026 productivity forecast to a 0.5% contraction and warned there is little evidence of a sustained productivity improvement.