Property market downturn spreads to more than 90 per cent of suburbs

The property downturn is now nationally universal.

Prices are going backwards in an astonishing 93 per cent of suburbs, according to Cotality’s newly released (1 September) Home Value Index.

With the exception of Australia’s smallest capital city market, Darwin, median home values have fallen in every other city market and regionally.

While the two most prominent monthly price data reports vary on just how sharp the August price falls were, they agree the market is heading in one direction.

Cotality have put the monthly decline at a perilous 1.1 per cent, while the realestate.com.au Home Price Report (formerly the PropTrack report) has the national market a more modest 0.2 per cent in the red.

A spooked property market is digesting the Federal Budget changes to negative gearing and capital gains tax discount reforms, while also weighing up the prospect that even higher interest rates are likely on the horizon.

Despite the series of rate hikes this year, and the Reserve Bank of Australia (RBA) now has an inflation gun at its head. Three of the big four banks now expect the RBA could lift interest rates again before Christmas.

Investors are running scared, listings are rising as sellers seeking to avoid price falls, buyers are waiting for bargains to arise and the costs associated with building homes, servicing loans and confronting a rising cost of living are driving prices down.

The market correction has now taken firm hold in Perth, Adelaide and Brisbane, and the regions, all of which were the nation’s real estate powerhouses over the past few years. The malaise has also spread across all price segments.

Tim Lawless, Cotality’s Research Director, said the proportion of capital city suburbs recording a fall in home values more than doubled through winter, rising from 45.8 per cent in autumn to 93 per cent, highlighting a much broader weakening in housing conditions.

“The narrowing performance gap between the upper and lower quartiles is another sign this downturn is broadening,” Mr Lawless said.

“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.”

As demand has weakened, homes are taking longer to sell and listings have accumulated.

Across most capital cities, advertised supply is now tracking well above both year-ago and five-year average levels. Over the four weeks ending 30 August, capital city listings were 24 per cent higher than a year ago and 8 per cent above the five-year average.

This rise in listings comes despite fewer new listings, with the flow of freshly advertised homes added to the market tracking 6 per cent lower than a year ago and 8 per cent below the five-year average.

“Higher advertised stock levels are simply a factor of a slower rate of absorption,” Mr Lawless said. “Longer selling times, larger vendor discounting and persistently low auction clearance rates all point to a buyer's market, yet buyers are lacking the confidence to transact at the moment.”

Eleanor Creagh, Senior Economist, REA Group, said an imminent turnaround was unlikely.

“Further price falls are likely to be seen over the coming months, particularly across the capital cities.

“Uncertainty around tax changes, the outlook for interest rates, and ongoing price falls, continue to weigh on confidence, keeping some buyers on the sidelines.”

According to the alternative Home Price Report, price falls broadened across the capital cities in August, with Adelaide (-0.9 per cent), Brisbane (-0.3 per cent) and Perth (-0.2 per cent) all declining despite remaining among the strongest markets over the past year. Sydney (-0.3 per cent), Melbourne (-0.2 per cent) and Canberra (-0.4 per cent) also fell.

With affordability constraints taking their toll, it’s the pricier house segment that is being hit harder than the unit market.

Nationally, units were down 0.5 per cent compared to 1.1 per cent for units, according to Cotality. Perth was the only capital in which houses (-0.7 per cent) outperformed units (-1.0 per cent).

As buyer demand has weakened, homes are taking longer to sell, leading to a build-up in advertised stock across the capital cities. Over the four weeks to 30 August, total listings were 24 per cent higher than the same period last year and 8 per cent above the five-year average.

The increase in available stock comes despite a decline in the number of new properties coming to market. Fresh listings were 6 per cent lower than a year ago and 8 per cent below the five-year average over the same period.

According to Mr Lawless, the rise in advertised stock reflects a slower rate of absorption, with homes spending longer on the market and vendors increasingly discounting their asking prices.

“Longer selling times, larger vendor discounting and persistently low auction clearance rates all point to a buyer’s market,” Mr Lawless said. “Yet buyers are lacking the confidence to transact at the moment.”

Falling prices, rising caution

The broader weakness in the property market is also raising concerns about negative equity and, perhaps more importantly, buyer confidence.

Julie Kelley, Head of Sales and Marketing at aussieproperty.com, said negative equity was a genuine risk for some recent buyers, although it was unlikely to become widespread unless property values fell substantially and were accompanied by rising unemployment or forced sales.

“The most exposed borrowers are generally those who purchased recently with a very small deposit and have had limited time to reduce their loan balance,” Ms Kelley said.

“A decline in the paper value of a home is not necessarily disastrous if the borrower can continue making repayments and hold the property until the market recovers.”

The greater risk, she said, was when negative equity coincided with mortgage stress, unemployment, illness, relationship breakdown or a need to sell.

That risk is becoming more pronounced. Roy Morgan estimates that 30.3 per cent of mortgage holders — approximately 1.606 million people — were at risk of mortgage stress in the three months to June 2026, marking the fifth consecutive monthly increase.

At the same time, falling prices are changing the behaviour of prospective buyers, with some now holding off purchases in anticipation of significantly cheaper properties.

Bishnu Aryal, Director of Finconnex Financial, said some clients with finance already approved were choosing not to proceed because they expected property values to fall by another 15 per cent to 20 per cent.

“We’re seeing buyers who have finance approved and are ready to purchase, but they’re choosing not to because they believe prices have much further to fall,” Mr Aryal said.

“They’re not waiting because they can’t buy; they’re waiting because they think they’ll get a much better deal if they’re patient.”

Mr Aryal said the shift represented a notable change in buyer psychology. Rather than simply asking whether they could afford a property, more buyers were now trying to time the bottom of the market.

“A year ago, buyers were mainly asking whether they could afford the repayments,” he said. “Now many are asking, ‘Why would I buy today if prices are going to be cheaper in six months?’”

In one recent example, a young Sydney first home buyer couple withdrew from the purchase of a $1.2 million house after deciding property prices could fall another 15 per cent to 20 per cent.

“They decided to walk away because they thought they would be able to buy the same property for much less if they delayed,” Mr Aryal said.

“That’s just one example, but we’re hearing that kind of thinking much more often.”

Business slowing at the big banks

The property market slowdown is also flowing through to the banks’ mortgage books, with APRA data for July showing home lending grew at its slowest pace in three years.

Residential mortgages continued to expand during the month, but by a subdued 0.2 per cent, following three RBA rate hikes in 2026 and the Federal Government’s property tax announcement.

It marks the weakest monthly growth since July 2023, when the RBA had delivered 12 rate hikes, including four double increases.

NAB’s mortgage book contracted by 0.01 per cent in its first decline since July 2024, while CBA and ANZ recorded the strongest percentage growth among the major banks, with residential lending increasing by 0.3 per cent, according to APRA’s monthly authorised deposit-taking institution (ADI) statistics released Monday (31 August).

Even Macquarie Bank, which has recorded average monthly mortgage growth of around 2 per cent over the past year, saw its pace of expansion slow to 1.2 per cent.

Investors are leading the retreat in the market slowdown. Home loans to investors increased by 0.1 per cent, or $1.1 billion for the month of July, the smallest increase in both percentage and dollar terms since February 2024.

Canstar’s Data Insights Director, Sally Tindall, said there could be an upside for borrowers.

“While we haven’t seen as many hikes as there were back in 2022 and 2023, the double whammy of a rising cash rate and the Federal Government's property tax changes has brought mortgage applications to a crawl.

“The silver lining for active home buyers is that this slowdown is forcing lenders out of their comfort zone.

“While the big banks are holding out on paper, mid-tier and challenger lenders are actively cutting variable rates to fight for a shrinking pie of mortgage applicants.

“If you’re willing to look beyond the majors, there are genuine deals on the table.”