The cost of buying a home in Australia's two biggest cities has dropped, according to the latest figures from research agency Cotality. Dwelling values fell 0.9 per cent in Sydney and 0.8 per cent in Melbourne during May. There was also a drop in the ACT, of 0.2 per cent. While prices rose in other state and territory capitals, the growth was weaker than previously seen.
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TRANSCRIPT
Australia's two biggest cities are leading a downturn in dwelling values, while across the country Cotality's national Home Value Index was flat for the month of May.
Neither market quite reaching a full percentage point drop: in Sydney dwelling values fell 0.9 per cent while in Melbourne the drop was 0.8 per cent.
It's two to three per cent below their cyclical highs in November last year.
Home values were also lower across the ACT, by 0.2 per cent.
Cotality says values continued to rise across the remaining capitals but growth is losing momentum.
Perth and Darwin had a monthly gain of 1.5 per cent, Brisbane and Hobart 0.9 per cent and Adelaide 0.5 per cent.
Coalition Treasury spokesman, Tim Wilson, says it's a sign of a lack of hope in the future.
"The reason house prices are feeling an adjustment, is because people aren't confident in their future, I'll never welcome a time where Australians feel less confident about their future."
Tim Lawless from Cotality says the Federal Budget is just one factor among many.
"There's a lot of reasons for this flat outcome in our national index, you can go all the way back to the end of last year when affordability challenges and serviceability pressures were starting to slow the market, but since then we've obviously seen 75 basis points of rate hikes, we've seen a crisis in confidence amid what's happening in the Middle East and higher fuel costs and now we've seen the Federal Budget handed down which we're expecting to be a disincentive for investment activity as well, so there's a whole range of things but I think foundationally this really started late last year and has been gathering some momentum."
There's speculation values could fall by as much as 10 per cent but Treasurer Jim Chalmers says Treasury modelling shows house prices will continue to grow.
"Obviously, I'm aware that there are a number of different forecasts about the outlook for house prices, the Treasury modelling we provided in some detail on budget night says that Treasury expects house prices to continue to grow but about two per cent more slowly than before. That's about $19,000 on the median house price and so that's Treasury expectations but I acknowledge that different organisations and different entities have different forecasts, once again the budget is not the only factor when it comes to what's happening in our housing market, we have seen multiple interest rate hikes in recent months, we have got a softening of economic conditions more broadly as a result of the war in the Middle East so we're seeing all that play out."
While the tax changes in the budget aren't the only factor in the drop in dwelling values, Tim Lawless says the impact is being seen in auction clearance rates.
"Last weekend, the early numbers came in at 54 per cent which was the lowest clearance rate we've seen since 2020 just as COVID was becoming a thing, so I think there's some clear indirect evidence the budget's had a negative impact on sentiment, and we are expecting that'll flow through over the coming months."
But Jim Chalmers says clearance rates are also impacted by a number of factors, including Reserve Bank rate rises and broader economic conditions, as well as policy changes in the budget.
"Some of those clearance rates were coming down already and the budget is not the only factor when people are thinking about participating in those auctions. But if we are making it easier for first home buyers to get a fair crack at auctions then that's a good thing. We've only seen the preliminary numbers for Saturday, some of those preliminary numbers have come up a bit, in other markets they've gone down a bit we'll see the final numbers in due course but the budget is not the only factor when it comes to those auction clearance rates, there are other factors like interest rates and that's why we'd already seen some movement in auction clearance rates before the budget."
And while house prices have started to fall, rents are expected to continue to rise.
The national vacancy rate is low at 1.5 per cent, meaning demand is high and could see numbers continue to rise.
The Cotality data shows a 0.6 per cent increase in May, which was the same as the April number but slightly down on the first three months of 2026.
