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National home values recorded zero growth in May. Not a crash, not a boom — just a flat line. But that flat number is doing a lot of work to disguise what’s actually happening underneath.
The cities are splitting, the slowdown is spreading, and the question of where this goes next is getting harder to answer. Housing experts say it’s not a time to panic, yet.
Sydney And Melbourne Are Going Backwards
Accoring to new Cotality data, Sydney home prices fell 0.9% in May. Melbourne dropped 0.8%. Both cities are now well below where they were last November — Sydney is down 2.1% from its peak, Melbourne down 2.9%.
Those aren’t dramatic numbers on their own. But they are consistent, and they are accelerating. A year ago both cities were still growing. Now they’re not, and the conditions driving that reversal haven’t gone away.
Fewer people are buying. Sydney home sales are down 17% on a year ago. Melbourne is down 14.2%. More properties are sitting on the market, giving buyers options they haven’t had in years. Auction clearance rates were sitting near 50% through the second half of May — a level that tells you sellers no longer have the upper hand.
Even cheap properties are starting to soften. For most of this cycle, the affordable end of the market held up while premium suburbs led any falls. That’s changing. Lower-quartile houses are now falling in both Sydney and Melbourne, and across most of Canberra’s market too.
Perth, Darwin, Brisbane, Hobart And Adelaide Rise
Perth rose 1.5% in May. Darwin matched it. Brisbane and Hobart were up 0.9%. Adelaide added 0.5%.
Cotality research director Tim Lawless has been tracking this divergence for years, but the five-year numbers are still striking. Perth home values are up 91.4% since May 2021. Melbourne’s are up 3.3%.
“The past five years have seen these cities diverge sharply,” Lawless said. “While the speed of value change remains very different from city to city, the direction is becoming more consistent — with most markets losing momentum.”
It’s not just the capitals. Regional values rose 0.6% in May, still positive, but the smallest monthly gain in a year. Regional WA led at 1.9%. Regional NSW brought up the rear at 0.2%.
The regions had been a relative bright spot through much of the past year. That edge is fading.
The Reason For Fall In Home Values
It’s tempting to pin the slowdown on interest rates, or the Federal Budget, or the situation in the Middle East. All of those things matter.
But Lawless is clear the momentum was already leaving the market before any of them landed. Most cities peaked in growth terms last spring, when affordability started to genuinely limit how much buyers could pay.
Everything since has just made it worse. Nationally, home sales over the past three months are running 2.2% below a year ago and 4.1% below the five-year average. That’s not a blip — it’s a market where fewer people can afford to move.
Oliver Hume Property Group chief economist Matt Bell said the one thing keeping values from falling harder is the simple fact there aren’t enough homes.
“It seems a housing shortage goes a long way to mitigating an uncertain global environment,” Bell said.
He’s not sounding alarms, but he’s not bullish either. With more rate rises expected, he said the year has shifted shape. “2026 has probably gone from being a solid year of recovery in prices, to a holding pattern at best.
Is it time to panic?
Probably not – but that depends on where you sit.
If you own in Sydney or Melbourne, the falls are real, but they need context. ANZ has revised its capital city forecast down to 2.8% growth for 2026, citing higher rates, weak confidence and the Middle East conflict. But, its economists still expect both cities to lead a national recovery in 2027. A short-term dip followed by a rebound is a well-worn pattern in Australian property.
https://propertyupdate.com.au/australian-property-market-predictions/
The structural case for prices holding up over time hasn’t changed. KPMG forecasts new dwelling supply over the next two years will come in around 30% below the target set under the National Housing Accord — meaning the shortage that has underpinned prices for years isn’t going away any time soon.
Three rate rises in quick succession this year have cost a single-income buyer on average wages roughly $36,000 in borrowing power, and a dual-income couple around $72,000. That’s real pressure, and it’s showing up in the data. But it’s a different thing to a crash.
The buyers with the most to worry about are those who stretched to buy premium properties in Sydney and Melbourne in the past 12 months. Everyone else, particularly, those in Perth, Brisbane, or Adelaide, are in a very different position.
Where Does Australia’s Housing Market Go From Here
The market isn’t collapsing. But it’s not recovering either, at least not in the cities where most Australians live.
Listings are up, sales are down, clearance rates are soft, and the two cities that drive the national conversation are both falling.
What happens next depends on rates, on confidence, and on whether the budget pressures squeezing households start to ease. None of those things look like turning quickly.
Real Estate Magnate John McGrath holds up hope. “Admittedly, news for the property market hasn’t been positive lately, with spiralling interest rate making life challenging for home owners,” said McGrath.
“But the one thing you can be sure of, is that property can be cyclical, where returns and values will move up and down over time. These changes are also usually due to unforeseen issues, such as inflation, geopolitical unrest – or a Federal Budget.”
McGrath has this advice to home owners. “Don’t panic about the current headlines. Instead, look to the long-term future of your property and what it will give back to you and your family,” said McGrath.
