Australia’s Housing Market Shows Signs of Slowdown Amid Rising Rates and Affordability Pressure

Early Downturn in Sydney and Melbourne

Cotality’s analysis of the Home Value Index indicates that capital city home values were only 0.2% higher in April, highlighting the waning momentum across the market. Sydney and Melbourne both recorded a 0.6% decline in dwelling values in April, with Sydney now 1.0% below its November 2025 peak and Melbourne 2.3% below its March 2022 high.

Tim Lawless, Research Director at Cotality, explained:

“Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals. Listings are picking up as demand softens, interest rates are rising, and affordability and serviceability pressures are biting.”

Historical data shows that housing downturns in Australia tend to be short-lived, with all but three capital city downturns over the past 40 years lasting less than 12 months.

Source: Cotality Australia – Home Value Index, April 2026

Mid-Sized Capitals Continue to Moderate

While growth is slowing nationally, mid-sized capitals are still recording moderate gains. Perth’s dwelling values increased 2.1% in April, adding over $21,000 to the median property value, while Brisbane, Darwin, and Adelaide posted monthly growth of 1.2%, 1.3%, and 1.1%, respectively.

• Perth: Dwelling values increased by 2.1% in April.
• Brisbane: Dwelling values increased by 1.2% in April.
• Darwin: Dwelling values increased by 1.3% in April.
• Adelaide: Dwelling values increased by 1.1% in April.

Despite these gains, all capitals recorded slower month-on-month growth, indicating that the market is entering a more balanced phase.

Source: Cotality Australia – Home Value Index, April 2026

Supply and Buyer Demand

Tight supply conditions are beginning to ease as listing levels rise amid weakening demand rather than a surge in new stock. In the four weeks to early May, 39,319 properties were added nationally, 4.7% above the five-year average. Listings are holding above average in Sydney, Melbourne, and Canberra.

Mortgage arrears remain low at 1.45%, reflecting prudent lending standards and mortgage serviceability buffers. Lawless noted:

“Recent buyers, particularly those using smaller deposits such as the 5% Deposit Scheme, may face some risk of negative equity, but mortgage repayments are typically prioritised, with borrowers adjusting spending elsewhere before missing payments.”

These conditions suggest that while buyer demand is softening, the broader mortgage market remains relatively resilient. However, affordability and serviceability constraints are increasingly shaping buyer behaviour.

Sources: Cotality Australia; Home Value Index, April 2026

Market Outlook

Cotality warns that further rate rises could intensify the slowdown, but most homeowners remain well insulated due to strong equity positions. Over the past five years, the combined capitals Home Value Index has risen 33.7%, with cities like Perth, Brisbane, and Adelaide recording growth of 80–90%.

Historically, downturns have been relatively brief, with exceptions such as Perth following the mining boom and Darwin during the 2014–2020 period. The current slowdown follows a period of substantial gains, providing a cushion for homeowners despite weaker sentiment and tighter affordability.

“The combination of rising interest rates, affordability pressures, and waning confidence suggests the market may see further moderation in the coming months,” said Lawless.

Tight aggregate supply and a still-resilient labour market are expected to limit the risk of a sharp correction, although population growth is now providing less of a tailwind as affordability constraints and tighter credit conditions weigh on effective demand. Market performance is likely to remain uneven across cities, price points and regions, as buyers increasingly prioritise affordability and serviceability.

Source: Cotality Australia – Home Value Index, April 2026