Australia’s housing downturn broadens
Values soften as the downturn spreads
The latest quarter marks a clear shift from a concentrated correction to a broad-based decline in housing values.
Over the past three months national values fell 3.1%, with the combined capitals down 3.7% and regional values down 1.2%.
The downturn has also broadened significantly. 93% of capital-city suburbs recorded falling values through winter, more than double the 45.8% recorded through autumn. Every capital city except Darwin declined over the past three months with Sydney remaining the weakest major market.
Tim Lawless, Cotality’s Research Director, said the downturn is no longer confined to selected markets or higher-value properties, “What started as a more concentrated easing across higher-value segments has now become a much more generalised softening, with the vast majority of capital-city suburbs recording some level of decline.”
A narrowing two-speed market
Higher-value properties continue to record weaker conditions as borrowing costs and serviceability constraints limit purchasing capacity. However, the gap between higher- and lower-value housing has narrowed, with lower-quartile values now also falling as affordability pressures and weaker demand spread.
“Premium markets are still generally recording weaker conditions, but lower-priced housing is becoming less insulated as affordability pressures and softer demand weigh more evenly across the market,” Lawless said.
Government grants for first-home buyers should continue to support the affordable end of the market, although it is no longer insulated from broader weakness.
Regional markets remain more resilient
Regional markets continue to outperform the capitals, although the gap is narrowing. The combined regional index fell 0.4% in August and 1.2% over the quarter, compared with a 3.7% quarterly decline across the capitals.
Relative affordability and population growth continue to support many regional markets, although they are also moving into a softer phase.
Demand and selling conditions weaken
This weaker phase of the housing downturn has been largely driven by declining demand, with Cotality’s estimate of home sales tracking 15.5% lower than at the same time last year.
As housing demand weakened, properties are taking longer to sell and advertised supply is now tracking well above both one year-ago and five-year average levels across most capital cities, giving power to buyers in the spring property market.
Supply remains an important support
New housing supply also remains insufficient relative to underlying demand. Elevated construction costs, capacity constraints and feasibility challenges continue to limit housing completions.
Constrained supply should help limit the depth of the downturn, even as weaker demand weighs on established property values.
Interest rates, inflation and employment
Higher interest rates remain a significant headwind, with high mortgage costs, reduced borrowing capacity and cost-of-living pressures weighing on buyers. Higher-than-expected core inflation has also increased the risk of another rate rise, which would put further pressure on households.
Employment remains an important buffer. Low unemployment should help limit widespread arrears or distressed selling, although a softer labour market would further weaken housing demand.
Looking ahead
The next few months are likely to reveal continued downward pressure, although the scale of the correction will vary between markets.
According to Lawless, “The risk profile for housing has shifted more firmly to the downside. Even though values have already moved lower, the combination of sticky inflation, the prospect of higher rates and ongoing pressure on household budgets suggests demand is likely to remain subdued through spring.”
Low housing supply, relatively low unemployment and first-home-buyer support provide some underlying support. However, falling values, weaker sales, rising stock and softer selling conditions indicate the market has moved decisively into a buyer-favoured phase.
Dwelling values over the quarter
Melbourne
The Victorian capital decreased by 3.9% over the quarter, taking the city’s median dwelling value to $786,718. Melbourne values are now 4.7% lower than a year ago and 6.8% below the March 2022 peak. The gross rental yield is currently 4.0% in August.
Sydney
Sydney recorded the strongest decline with 4.7% decline over the quarter, resulting in a median dwelling value of $1,222,718. Values are now 4.6% lower than a year ago and 7.1% below the February 2026 peak. The gross rental yield for August remains the lowest of the major capitals at 3.3%.
Brisbane
The Queensland capital recorded a 2.7% decline over the quarter, taking its median dwelling value to $1,080,142. Despite the recent falls, Brisbane values remain 10.8% higher than a year ago. The gross rental yield for August 3.4%.
Canberra
The national capital recorded a 2.8% decline over the quarter, with the median dwelling value now $864,998. Canberra values are 0.4% lower than a year ago, while the gross rental yield is currently 4.3% in August.
Perth
Perth recorded a 3.2% decline over the quarter, taking its median dwelling value to $999,987. Despite the quarterly fall, Perth remains one of Australia’s strongest-performing markets, with values 15.6% higher than a year ago. The August gross rental yield is currently 3.9%.
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Source: Cotality Home Value Index, September 2026 Index results as at 31 August 2026.
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