Housing markets losing momentum as they face stronger headwinds
The last quarter marked a clear shift in housing conditions, with growth continuing to slow and market performance becoming increasingly fragmented. According to Cotality’s June Home Value Index, national dwelling values rose 0.6% over the quarter, reflecting a market that has moved from broad-based growth to a more selective environment.
A multi-speed market
The divergence between markets remains a defining feature of current conditions, with Melbourne and Darwin at opposite ends of the spectrum.
Melbourne recorded the strongest declines over the quarter of 2.3%, followed by Sydney where dwelling values declined 2.1%over the quarter. Canberra also edged lower, down 0.5%. In contrast, Darwin recorded values increasing 5.2%, followed by Perth at 4.8%. While the smaller capitals continue to outperform, growth has moderated as higher borrowing costs and affordability constraints begin to weigh on demand.
As Cotality Research Director Tim Lawless noted, “while the speed of value change remains very different from city to city, the direction is becoming more consistent, with most markets losing momentum as demand-side headwinds intensify.”
Regional markets continue to demonstrate greater resilience than the capitals. Combined regional values rose 2.4% over the quarter, compared with flat conditions across the combined capitals. Lifestyle migration, relative affordability and ongoing population growth continue to support many regional centres.
Market performance also varies across price points. Lower-priced segments have generally remained more resilient, supported by first-home buyers and government incentives. In contrast, higher-value markets have experienced greater weakness as buyers become more sensitive to borrowing costs.
The forces shaping the market
Several factors throughout the quarter have created a more challenging environment for housing demand.
Recent interest rate increases have reduced borrowing capacity and placed additional pressure on household budgets. The Federal Budget has also influenced sentiment, particularly among investors, with proposed changes to negative gearing and capital gains tax arrangements creating uncertainty in some parts of the market.
Analyst Luc Redman of the REA Group said the combination of changes to capital gains tax, negative gearing and development investment would shape the market in ways that cannot entirely be anticipated. “The combination of these policies is not well understood in the public domain over the long term, though it is likely the incentives for new builds will support an increase in supply as much as construction and zoning constraints currently allow. In the short term, due to these changes, it is likely home prices soften slightly and rents increase marginally.”
Supply, listings and buyer activity
Market activity softened during the quarter.
New listings increased across many cities as more vendors sought to sell, but buyer demand has not kept pace. Cotality estimates national home sales over the past three months were 2.2% lower than a year earlier and 4.1% below the five-year average.
Auction markets have also weakened. Preliminary national clearance rates fell to 54.5% at the end of May, with Sydney recording some of the sharpest declines.
What continues to support values?
Despite softer demand conditions, several factors continue to provide support.
Housing supply remains constrained, with elevated construction costs, labour shortages and project feasibility challenges limiting new housing delivery. Population growth remains solid and continues to underpin demand for both owner-occupied housing and rentals.
The labour market is also providing stability. Employment conditions remain relatively strong and mortgage arrears are low by historical standards, reducing the likelihood of widespread forced selling.
Rental markets remain exceptionally tight, with low vacancy rates and ongoing rental growth continuing to support investor demand.
Looking ahead
The full impact of recent rate rises and Federal Budget measures is yet to be fully reflected in market activity and may become more evident over coming months. However, housing supply constraints, population growth and resilient employment conditions should continue to provide a floor under values.
As Tim Lawless observes, the most likely scenario is not a dramatic market correction but rather “a further loss of momentum and a drift towards lower home values”. For buyers, sellers and investors alike, the remainder of the year is likely to be defined by a more balanced market and increasingly localised performance.
Dwelling values over the quarter
Melbourne
The Victorian capital decreased by -2.3% over the quarter, taking the city’s median dwelling price to $812,621. Investors should take note that the gross rental yield figure for Melbourne is 3.9%.
Sydney
Sydney also showed a decrease in property values over the per cent of -2.1%, resulting in a median of $1,282 million. The gross rental yield for the Harbour City remains the lowest of the capitals at 3.2%.
Brisbane
The Queensland capital continues to record the second most expensive spot for dwelling values at $1,126 million and a quarterly rise of 3.4%. Brisbane’s gross rental yield remained at 3.3%.
Canberra
The national capital recorded a decrease of -0.5% during the quarter with the median now sitting at $890,555. For Canberra, the gross rental yield stayed constant at 4.1%.
Perth
Perth again recorded the strongest increase of all the capitals, growing by 4.8% over the quarter, which took it’s medium value to over one million dollars at $1,050,354. Perth recorded 3.6% gross rental yield.
For more information about how you might be able to purchase a property in the current market, get in touch with us today 0n 03 9723 0522.
Note: all figures in the city snapshots are sourced from: Cotality national Home Value Index June 2026.)
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