Housing downturn deepens as Sydney leads national retreat

Australia’s housing market has entered a new phase of its correction, with price declines spreading well beyond Sydney and Melbourne and reaching markets that only months ago appeared almost untouchable.

Fresh figures from both Cotality and PropTrack show July delivered the weakest monthly performance in more than three years, suggesting the downturn is broadening rather than simply deepening.

Cotality’s national Home Value Index fell 0.7 per cent during July, the largest monthly decline since December 2022. PropTrack’s Home Price Index recorded a 0.3 per cent fall, marking its fourth consecutive month of declines. National dwelling values are now sitting around two per cent below their recent peaks, although they remain comfortably above year-ago levels.

Sydney continues to wear the brunt of the correction.

Cotality recorded a 1.4 per cent decline during July and a four per cent fall over the past three months, while PropTrack reported a 0.6 per cent monthly drop. Melbourne also weakened, with values falling between 0.4 and 1.2 per cent depending on the index.

Perhaps more significant, however, is that the slowdown is no longer confined to Australia’s two largest housing markets.

Brisbane and Adelaide both slipped for a second consecutive month, Canberra recorded another sizeable decline, and even Perth, the country’s standout performer for much of the past two years, is on the slide. Darwin was the only capital city to post meaningful monthly growth.

Regional markets, which have consistently outperformed the capitals since late 2025, also lost ground. Cotality’s combined regional index fell 0.2 per cent, its first monthly decline since early 2023.

Buyers and sellers remain miles apart

According to Cotality Head of Research Gerard Burg, the market is still searching for equilibrium as buyers and sellers struggle to agree on price.

“There remains a mismatch between the pricing expectations of buyers and sellers,” Mr Burg said.

“Capital city auction clearance rates have remained below 50 per cent since late May, although they have moved up from the low 40 per cent range in mid-to-late June.”

That disconnect is also becoming evident in listing activity.

Rather than rushing to market, many homeowners are choosing to delay selling altogether.

“We have observed a deterioration in the flow of new listings across the country in recent weeks, led by Sydney, as potential vendors assess a weak market and choose to wait until conditions improve,” Mr Burg said.

Buyer demand, however, has softened even faster.

While new listings are slowing, the overall volume of homes available for sale continues to climb as properties remain on the market for longer.

Across the combined capital cities, advertised supply is now almost six per cent above the five-year average, marking a sharp turnaround from the tight conditions that prevailed earlier this year.

Higher-priced homes have been hit hardest.

Over the three months to July, upper-quartile properties declined 3.2 per cent nationally, while lower-priced homes still managed modest growth, highlighting the ongoing affordability pressures facing buyers.

Perth loses momentum

Property owners banking on capital growth in Perth will be hearing alarm bells.

The supposed 0.7 per cent monthly price gain recorded by Cotality for June has proven to be a mirage. That solid growth has been ‘revised’ downward to a more alarming 0.5 per cent fall.

The July figure suggests, for now, that Perth prices narrowly kept their head above water in July.

“As the full population of sales data is received for the month, the accuracy of the index results will improve, hence the revision,” Cotality told API Magazine.

“The revisions to the index, especially in Perth and Darwin, have been larger than average over the past couple of months, reflecting the speed at which the market is changing.” 

Even so, Perth remains one of Australia’s strongest annual performers, alongside Darwin, with dwelling values still 20.5 per cent and 16.3 per cent higher than a year ago, respectively.

Banks turn up the competition

As housing demand softens, lenders are becoming increasingly aggressive in their pursuit of borrowers.

Macquarie recently trimmed its lowest advertised variable mortgage rate to 6.04 per cent, joining at least 28 lenders that have reduced rates for new customers since June, according to Canstar.

The move comes despite residential mortgage balances continuing to grow nationally, illustrating that while overall lending remains resilient, banks are fighting harder than ever for new business.

Canstar Insights Director Sally Tindall said the wave of cuts demonstrates that competition, rather than Reserve Bank policy, is driving borrowing costs lower.

“Rate relief isn’t coming from the RBA any time soon and so this ramping up in competition is the kind of news borrowers need right now,” she said.

“But if you’ve got a mortgage, it won’t make one iota of difference unless you do something about it.”

Borrowers willing to negotiate with their existing lender, or refinance altogether, are increasingly finding meaningful savings despite the absence of official cash rate cuts.

Sydney becomes a tale of two markets

While Sydney is leading the national downturn, not every part of the city is moving in lockstep.

Sourced Property buyers agent Rhiannan Jenkins said affordability in the country’s biggest property market is continuing to push buyers towards the outer suburbs, where improved infrastructure and employment opportunities are reshaping demand.

“I think the outer Sydney suburbs are performing due to affordability,” she said.

“People are being priced out of inner suburbs and are looking for alternatives.”

Major transport projects, expanding employment hubs and new community infrastructure have made many outer suburbs increasingly attractive for families.

Longer term, however, Ms Jenkins believes scarcity will continue to underpin stronger capital growth in established inner-city locations.

Character terraces, larger land holdings and tightly held homes cannot simply be recreated, making them fundamentally different from newer estates on the city’s fringe.

“In my view, scarcity is one of the biggest drivers of property price growth,” she told API Magazine.

“While we can increase housing supply through apartment developments, this tends to dilute scarcity in that particular category, making the existing stock of unique or character properties even more valuable over time.”

By comparison, expanding greenfield developments create more choice for buyers, limiting vendors’ pricing power.

For investors, Ms Jenkins believes avoiding the extremes remains a prudent approach.

Rather than chasing either prestige homes or the cheapest stock available, she recommended targeting quality properties close to a suburb’s median price, where future buyer demand is likely to be strongest.

A market searching for its floor

Australia’s housing market is clearly losing momentum, but this is not a repeat of previous sharp corrections.

Annual growth remains positive across most capitals outside Sydney, Melbourne and Canberra, while regional South Australia and Western Australia continue to post gains.

Nevertheless, the forces supporting prices over the past two years are fading.

Higher borrowing costs, stretched affordability, softer consumer confidence and increased housing supply are beginning to outweigh the chronic undersupply that drove values to record highs.

Anne Flaherty, Senior Economist, REA Group, said high interest rates are weighing on prices, with the impact of reduced borrowing capacities being exacerbated by ongoing cost of living pressures.

“Budget tax changes are also likely impacting overall buyer confidence, while ongoing price falls could be driving some buyers to delay purchasing until prices stabilise.

“Further price falls are likely to be seen over the coming months.

“While inflation moderated in June, it remains elevated and there is still a risk that interest rates could move higher before the end of the year,” she said.