Warning bells sound as auction market slumps to weakest level since the pandemic

Australia’s housing downturn is becoming increasingly difficult to ignore, with new data showing auction markets have slumped to their weakest position since the early stages of the COVID-19 pandemic.

Confidence has taken a hit across much of the country, although notable exceptions remain in Perth, Brisbane, Hobart and several regional markets. Affordability constraints, the Federal Budget’s proposed housing tax reforms, rising interest rates, escalating Middle East tensions and uncertainty surrounding the broader economic outlook have all weighed on buyer sentiment.

Fresh figures released by Cotality show the combined capital city preliminary auction clearance rate fell to 51.1 per cent last week, the lowest result since the week ending 26 April 2020.

More significantly, the previous week’s preliminary clearance rate of 54.5 per cent revised sharply lower to just 49.0 per cent once final results were recorded, marking the first time the combined capital city auction clearance rate has fallen below 50 per cent since May 2020.

The result adds to mounting evidence that Australia’s housing market is entering a more challenging phase after three Reserve Bank rate hikes this year, with Sydney and Melbourne now clearly leading the national downturn.

Melbourne recorded a preliminary clearance rate of 52.3 per cent last week, down from 58.1 per cent a week earlier and its weakest result since September 2021. The result was also 13.6 percentage points lower than the same period a year ago.

Sydney’s preliminary clearance rate edged up to 52.9 per cent from 51.8 per cent the previous week. However, the figure remained 5.2 percentage points below the same week last year and was still among the weakest auction results recorded in the harbour city this year.

Auction clearance rates are widely regarded as one of the timeliest indicators of housing market conditions, with sustained readings below 60 per cent generally associated with softer prices and weaker buyer demand.

While auction volumes were heavily affected by the King’s Birthday long weekend, the sharp deterioration in clearance rates suggests the slowdown extends beyond seasonal factors.

A total of 1,182 homes went under the hammer across the combined capitals last week, down 55.5 per cent from the previous week and almost 14 per cent lower than the same period a year ago.

Brisbane produced one of the weakest results nationally, recording a preliminary clearance rate of just 31.9 per cent, its lowest outcome since May 2020. Adelaide’s preliminary clearance rate slipped to 64.2 per cent, while Canberra recorded 50 per cent after hitting a multi-year low the previous week.

Sydney and Melbourne leading the correction

According to Nerida Conisbee, Chief Economist at Ray White Group, the latest auction figures reflect a broader housing market correction that is becoming increasingly evident across the major price indices.

“The expected housing downturn is now showing clearly across major house price indices,” Ms Conisbee said.

“In May, the signal was broadly consistent: prices softened, with Sydney appearing to lead the decline.”

She said the slowdown had been building for several months before becoming visible in the data.

“By early 2026, it had become apparent that interest rates were likely to rise again, changing buyer expectations and reducing borrowing capacity,” she said.

“This was followed by the conflict in the Middle East, which pushed consumer sentiment to its lowest level ever recorded. By early May, three interest rate rises had been delivered.

“Together, these factors turned what had been a very strong housing market into one that was far more vulnerable to a pullback.”

Ms Conisbee said Sydney’s position at the forefront of the downturn was hardly surprising given its status as Australia’s most expensive housing market.

“A small change in interest rates has a much larger dollar impact in Sydney than it does in cheaper markets, making affordability constraints bite quickly,” she said.

“But confidence is just as important.

“Sydney had already been weaker than many other markets, suggesting buyers were more cautious even at the end of last year. Once borrowing conditions tightened and consumer sentiment deteriorated, that caution became more pronounced.”

The downturn is currently being led by higher-value housing markets, particularly premium suburbs where buyers are more exposed to large mortgages and discretionary upgrade decisions.

Ms Conisbee warned the pattern could evolve as investor demand weakens.

“So far, the investor pullback has not fully shown up in the price data,” she said.

“But as investor demand weakens, the pressure is likely to shift toward cheaper, more investor-exposed parts of Sydney.

“This means the downturn may begin at the top end, but the largest year-on-year falls could ultimately emerge in the lower-priced markets.”

The comments come as housing analysts continue to debate how much impact the Federal Government’s proposed negative gearing and capital gains tax reforms could have on investor activity once legislated.

While newly built dwellings would retain existing tax concessions, established residential property investors would face significantly different tax treatment from July 2027 under the Government’s proposed changes.

Even falling prices are not restoring affordability

Despite signs of weakening market conditions, affordability remains one of the biggest barriers facing prospective homebuyers.

Yannick Ieko, Co-Founder of The Harmony Group, said softer auction markets and modest price declines did not necessarily translate into improved accessibility for aspiring homeowners.

“Affordability isn’t simply about whether prices rise or fall in a particular month,” Mr Ieko said.

“It’s about whether people can realistically save a deposit, service a mortgage and absorb the increasing cost of living pressures that continue to impact household budgets.”

Mr Ieko said years of rapid property price growth, combined with elevated interest rates and broader inflationary pressures, had created a situation where many Australians remained locked out of home ownership.

“Even where we’re seeing softer market conditions, housing remains unaffordable for a large proportion of Australians because incomes haven’t kept pace with the cost of housing,” he said.

The challenge is particularly acute for younger Australians attempting to save for a deposit while paying record rents.