Cold feet and cooling prices: Australia’s property market is transforming – and first home buyers aren’t biting | Housing

As Australia’s housing market enters a downturn, first home buyers are starting to back out and investor demand is falling in all but new properties.

Nearly two months after the third consecutive rate hike and sweeping tax reforms, the market is transforming, research shows.

Here’s what the data tells us.

Buyers are cold

First home buyers are wary of rising interest rates, stalling the boom in demand fueled by the government’s 5% deposit scheme.

More than 10,000 new loans were made a month from October until March, when the scheme was expanded, according to an Australian Bureau of Statistics report.

Credit agency Equifax reported that mortgage applications were 10.9% lower in May than in May 2025, while first-time applications were down 13.4%.

First mortgage loan applications in the Loan Market decreased by 20% in June compared to the same month in 2025.

Another way to track entry-level activity is to compare price increases on homes that qualify for the popular 5% deposit scheme with those that don’t.

Homes will be eligible if they are priced below $1.5 million in NSW cities, $1 million in south-east Queensland, $950,000 in Melbourne and Geelong, $850,000 in Perth, $900,000 in Adelaide and $700,000 in Hobart, with varying levels across regions.

Data compiled exclusively for Guardian Australia by property analysis platform Cotality shows property prices outside the scheme’s price caps began falling in April.

The price of properties below the cap rose faster for longer, but began to fall in June.

Lauren Jones, a buyers agent from Brisbane, said she had only seen a handful of first home buyers out there, although a calmer market was working in their favour.

“This is what first-time buyers have been waiting for… and they’re not taking advantage of the opportunity,” Jones said.

The Reserve Bank’s interest rate rises have pushed the average new loan interest rate above 6% per annum, possibly forcing some first home buyers to give up.

Jones said buyers are also afraid of falling prices.

“When the market goes crazy, they go crazy,” he said.

“First-time buyers bid aggressively when the market is hot, but they pull back once the market calms down.”

Demand for expensive real estate collapsed

As more affordable homes begin to cool off, Australia’s most expensive homes are experiencing deeper declines.

High-end house prices are falling in Sydney, Melbourne and Canberra. Sydney’s top quartile (the top 25% of the market) has seen an average price drop of around $90,000 in the last three months.

Homes in the top quartile valued at around $1.8 million and above are in Sydney, $1.1 million in Melbourne, $1.4 million in Brisbane, $1.2 million in Adelaide and $1.3 million in Perth.

In Hobart, where most house prices are still rising, the top quartile of the market saw prices fall in the three months to June. Low demand has led to a slowdown in price growth for expensive properties in Brisbane, Adelaide and Perth.

Jones said Brisbane buyers were becoming more selective about high-priced properties, looking for fully renovated homes and ignoring or getting deep discounts on homes that needed work.

“Things that haven’t been renovated are sitting there and their prices will drop a little bit.”

But buyers can’t afford to be so picky about more affordable homes, he said.

“This probably happens more at the high end than at the lower end [where] They will still take as much as they can.”

Investors are stepping back

In mid-May, the federal budget cut off access to negative hardware for investors purchasing existing homes. Banks responded by reducing investors’ borrowing capacity by approximately 20%, National Australia Bank reported.

According to Central Bank data, investor loans increased by 10.3% annually in May, the fastest increase in the last decade. Regulatory data shows Commonwealth Bank, ANZ, Macquarie and Westpac are the top lenders.

Westpac said investor lending had fallen by a fifth over budget by mid-June, but owner-occupier demand remained steady.

Before the budget, investors had grown to account for around 40% of new home loans at major banks. Carolyn McCann, Westpac’s chief consumer officer, said in June investors had fallen towards the historical average of around 33% of the bank’s loans.

“We expect people to be a little impatient until they understand the rules,” McCann said.

Investors are buying new

Investors continue to show interest in purchasing new homes, thanks to the budget providing tax advantages over existing properties.

Labour’s reforms allow investors to buy or build new homes, still have a negative impact on them, and choose between new or old capital gains tax breaks when they sell.

Credit Market data shows new homes have survived the decline in investor spending, with the brokerage receiving 31% more applications from such investors this June than last June.

The proportion of new structures increased further, from 4.5% of the Loan Market’s 2025 total to 7% of the 2026 total. This is small but significant, as national ABS data shows new construction has accounted for just 4% of all investor loans since the start of 2025.

Nick Marino, sales manager at Swooper, a land developer in Sydney’s southwest, said the downturn had hit the new build market, with inquiries falling and some developers offering $20,000 discounts.

But Marino said those looking for a new home on the edge of town are willing to buy. Investors were holding steady, accounting for 20% of Swoopland’s business.

“Our operations are very, very healthy,” Marino said. “We’re starting to see more investors coming into the market, but it’s a tough market.”

Home sales are falling

The most obvious sign that the market is turbulent is a collapse in auction sales and more homes staying on the market for longer.

Since late May, fewer than half of the homes up for auction each week have sold successfully. In Sydney, the rate is even lower.

Fearing failure, sellers sign contracts before auction day, and about 40% of listed homes sell before auction. Those unable to pre-sale are canceling before the day, with close to 20% of scheduled auctions being withdrawn each week.

Tim Lawless, research director at Cotality, said the total number of house sales in capital cities in the three months to June fell by 16.2% compared to the same period last year.

This led to more homes sitting on the market longer, and by May, this period increased from 28 days to 30 days. New listings are falling, but backlogs mean more homes are on the market, with advertised supply remaining 11% higher for the year than in June.

“Buyers now have more stocks to choose from and there is less urgency in their decision-making process,” Lawless said.