Home prices 'fully in decline' with biggest national fall since 2022

The biggest monthly decline in home values in more than three years has been recorded as the housing market slowdown that began in Sydney and Melbourne spreads across the country.

According to property data firm Cotality, dwelling values fell 0.4 per cent nationally in June.

Sydney led the decline, falling by 1.2 per cent, while Melbourne values dropped 1 per cent.

The once-booming markets of Brisbane and Perth are still rising but at a much slower pace. Adelaide was flat, suggesting momentum is waning in almost every capital city.

Cotality research head Gerard Burg said the June figures marked an important turning point after months of slowing growth.

"The key change we've seen in our June data is that the national market is now fully in decline,"

he said.

Mr Burg described a "perfect storm" of headwinds affecting demand, which he said began before interest rates started to rise earlier this year.

"Even prior to the Reserve Bank lifting rates, we saw affordability being a considerable constraint in the market," he said.

"But then we've seen three rate rises, we've seen the impact of the Middle East conflict hitting energy costs for consumers and sentiment deteriorate already during this period, as well as the tax changes, so these factors combined have really driven this downturn that we've seen."

Revised data also paints a weaker picture than previously thought, with Cotality now saying the national housing market peaked in March.

Home values have fallen 0.7 per cent over the June quarter.

An alternative home price index from REA Group's PropTrack reported national prices fell 0.3 per cent in June, the third straight monthly decline.

Sydney and Perth recorded the biggest falls, both down 0.5 per cent, followed by Melbourne and Canberra, which each fell 0.4 per cent. Regional markets, by contrast, held steady.

Whatever dataset you look at, the trend is pointing in the same direction — house prices are weakening.

Why Sydney and Melbourne are falling faster

Sydney and Melbourne continued to lead the downturn but conditions were mixed elsewhere in the Cotality data.

Darwin recorded the strongest monthly growth of any capital city, with values up 1.4 per cent in June, while Hobart rose 0.6 per cent.

Mr Burg said the difference came down to the balance between supply and demand.

"We're seeing divergent conditions around the country, still reflecting the different imbalance between demand and supply in each of these markets," he said.

"With greater stock available for purchase in Sydney, this has seen the market there decline the fastest, while Brisbane and Perth are still the markets that have the tightest supply."

Westpac senior economist Matthew Hassan agreed and noted that cities such as Brisbane, Adelaide and Perth were still experiencing exceptionally low levels of homes for sale.

"In some cases we're talking about one to two months of sales from current listings, compared with four or five months in a more balanced market," he said.

Low rental vacancy rates were also helping support those markets, despite the broader slowdown.

By contrast, Mr Hassan said Sydney and Melbourne entered the downturn more fully priced and were more sensitive to higher interest rates, while on-market supply was beginning to tilt back towards buyers.

He said the medium-sized capitals were expected to slow, but tight supply meant a more significant correction was unlikely.

"We think they'll slow from here, perhaps with some price slippage along the way, but without a more material price correction," Mr Hassan said.

Cotality's home value index last saw a brief decline from November 2024 to January 2025, ahead of the RBA cutting interest rates.

The last period of a sustained fall in dwelling values was in mid-2022, when the central bank was hiking rates.

Investors retreat as uncertainty remains

Mr Burg said the housing slowdown reflected a range of headwinds, but Mr Hassan believed the federal government's housing tax changes became a significant source of continuing uncertainty in the month of June.

"Without a shadow of a doubt, the big change was the tax policy changes announced at the federal budget," he said.

"There's a lot of uncertainty about the impact of these policy changes, and uncertainty is poison for markets."

Mr Hassan said many investors were choosing to delay purchasing decisions while they assessed how the new rules would affect future returns.

Westpac is already seeing signs of that pullback in its loan book.

Mr Hassan said applications for investment loans had fallen by about 20 per cent, with the bank expecting investor demand to weaken further as the policy changes flowed through the market.

But he said the grandfathering provisions meant existing investors were unlikely to rush to sell, reducing the risk of a larger downturn.

New-build shift yet to emerge

The federal budget's changes are intended to redirect investor demand away from established homes and towards new construction, with the aim of increasing housing supply.

But that shift is not yet showing up in bank data, according to Westpac.

Mr Hassan said investor demand had weakened but there was little evidence yet that investors were moving towards building homes instead.

"We do expect to see investor activity skew more towards that type of activity, but so far that doesn't look to be showing through in the data," he said.

Deepening caution in the market is being felt by developers such as Sydney-based Rosewell Group.

Chief executive Louie Beaini said rising construction costs, higher financing expenses and weakening prices were making many projects increasingly difficult to deliver.

"The biggest misconception is that developers don't want to build — we absolutely do," he said.

"Unfortunately, with the prices coming down the way they are, it makes new project feasibility more difficult to stack up.

"If we want to solve Sydney's housing crisis, we have to make it easier to build quality homes, not harder."

Mr Beaini said developers were also dealing with construction costs that have risen by between 20 and 30 per cent over the past year, as well as long delays getting planning approvals.

"There's no confidence in the market," he said.

"A lot of people including investors have pulled back."

Rosewell Group's head of development Benjamin Ong said affordability had become the biggest barrier after three interest rate hikes.

"The demand is there. It's just that [buyers] can't afford it," he said.