Sydney and Melbourne lead housing downturn as national home values stall

Cotality's latest Home Value Index (HVI) showed Sydney dwelling values fell 0.9% over the month, while Melbourne values dropped 0.8%. 

This comes on the heels of the 0.6% drop in home prices the two big cities posted in April. 

Home values in both cities are now below their cyclical peaks in November 2025, with Sydney down 2.1% and Melbourne slipping 2.9%. 

Home values were also lower across the ACT, down 0.2% in May, completing the list of major east coast capitals where conditions have deteriorated. 

The weakness in the east coast has dragged on national performance, with the HVI flatlining (0%) in May. 

Cotality research director Tim Lawless said this recent slowdown had been building “for some time”. 

Mr Lawless said home values have been stalling well before interest rates started to rise, conflict in the Middle East escalated, and taxation changes were announced in the Federal Budget. 

Prices of houses in the lower quartile, despite still being more resilient than higher price tiers, were also falling in Sydney and Melbourne. 

Sales fall sharply in Sydney and Melbourne

The weakening trend is also evident in housing turnover, with home sales declining most sharply in Sydney and Melbourne. 

Estimated sales in the NSW capital were down 17% on levels a year ago, while transactions fell 14.2% in the Victorian capital. 

Nationally, the estimated number of home sales over the past three months was tracking 2.2% lower than a year ago and 4.1% below the five-year average.

“These are also the cities where advertised supply has risen to above average levels, providing more choice and better leverage for buyers,” Mr Lawless said.

Selling conditions have also softened as demand and supply levels rebalance. 

According to Cotality, the weighted average clearance rate across the capitals was hovering around 50% through the second half of May, while listings are trending higher across most markets. 

Growth continues elsewhere, but momentum fading

Despite the weakness in Sydney and Melbourne, other capital cities continued to record price growth in May, although the pace is notably easing.  

Perth and Darwin led monthly gains at 1.5%, followed by Brisbane and Hobart at 0.9%, and Adelaide up by 0.5% over the month. 

Mr Lawless noted the May results further reinforce the ongoing diverging conditions in Australia’s housing markets. 

“We are continuing to see multi-speed conditions across Australia’s housing sector, with Perth and Melbourne at opposite ends of the spectrum,” he said. 

Over the past five years, these cities have diverged sharply, with Perth values up 91.4% while Melbourne home values are only 3.3% higher since May 2021.

“While the speed of value change remains very different from city to city, the direction is becoming more consistent, with most markets losing momentum as demand-side headwinds intensify,” Mr Lawless said. 

Softer conditions ahead

According to Cotality, the housing market is moving into a more subdued pace, with affordability constraints, higher interest rates, and weaker confidence weighing on demand. 

Mr Lawless said the three recent RBA cash rate hikes, a cumulative 75 basis point increase, have further reduced borrowing capacity just as affordability constraints persist. 

“With affordability and serviceability pressures near record highs, the buyer pool has narrowed, particularly at higher price points where borrowing limits are most binding,” Mr Lawless said. 

The sweeping changes to housing investment tax settings are also expected to shift the outlook. 

Under the 2026 Federal Budget, negative gearing will be limited to new builds from 1 July 2027, and the 50% CGT discount will be replaced with inflation indexation. 

“These changes, together with an accumulation of earlier investor disincentives, are likely to see a material pullback in investor demand, albeit from near-record highs,” Mr Lawless said. 

Cotality said the balance of risks is tilting toward lower turnover and price growth slowdown.

“The most likely outcome is a further loss of momentum and a drift towards lower home values.”