‘Decline’: housing downturn looms as rate hikes bite
Australia is on the brink of a housing market downturn as interest rates and affordability take a toll on buyer demand, new data shows.
Price growth in mid-sized capitals is losing momentum, with Sydney and Melbourne already in the early stages of decline, according to Cotality’s latest Housing Chart Pack.
House values in the capital rose just 0.2 per cent in April, with property analytics firm research director Tim Lawless warning the national market could fall into negative territory within a few months.
“Price growth is slowing in mid-sized capitals, with Sydney and Melbourne already entering the early stages of a five-month decline,” Mr Lawless said.
“Listings are increasing as demand softens, interest rates rise, and affordability and serviceability pressures weaken.”
Mr Lawless told AAP that no significant increase in distressed sales or mortgage arrears was expected.
This could only occur if a worse-than-expected housing outcome is accompanied by weaker-than-anticipated labor market conditions or a larger-than-expected jump in interest rates.
The forecast came after the Central Bank raised the cash interest rate to 4.35 percent; This is the third increase so far in 2026 and completely reverses the cuts in 2025.
Cotality said in the last four decades the Australian housing market had recorded 10 crises lasting at least three months.
Rising interest rates, tighter credit conditions and affordability pressures are among the most common triggers.
Sydney house values fell 0.6 per cent in April and are now one per cent below the peak in November 2025.
Melbourne prices also fell 0.6 per cent during the month, remaining 2.3 per cent below the March 2022 high.
Despite the slowdown, sharp differences continue across the country.
In Perth, values rose 26 per cent last year compared to Melbourne’s two per cent growth; This highlighted the huge gap between the strongest and weakest capital markets.
Brisbane, Adelaide, Perth and Darwin all remain at record levels.
The change in the market is starting to favor buyers after years of tight conditions.
New property listings rose nationally to 39,319 in the four weeks to early May; this was 4.7 percent above the five-year average.
Despite the downturn, Cotality said most homeowners were well protected from a downturn after values rose by a third nationally in the last five years.
REA Group senior economist Eleanor Creagh agreed that April was a “turning point” when major equities led to a collapse in national house prices.
“Australia’s housing market is rebalancing; April marks a clear turning point in the cycle,” he said.
He said a number of factors, including continued housing supply, population growth and a resilient labor market, would moderate any downturn.
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