Australia’s housing market could be heading toward a broader downturn as rising interest rates, weaker buyer demand and increasing property listings begin to pressure home prices, according to a report by ABC News citing property analytics firm Cotality.
Key highlights
- Cotality warns of possible national housing downturn
- Sydney and Melbourne already showing declines
- Rising interest rates hurting affordability and demand
- More listings entering the market
- Recent buyers face negative equity risks
Sydney and Melbourne lead declines
Cotality Research Director Tim Lawless said Sydney and Melbourne are already in the early stages of decline.
Sydney dwelling values fell 0.6% in April and are now 1% below their November 2025 peak, while Melbourne prices also dropped 0.6% during the month and sit 2.3% below previous highs.
Lawless said growth across several mid-sized capitals is also slowing.
Higher rates hit buyer demand
The report said rising interest rates, worsening affordability and tighter serviceability conditions are reducing buyer demand across the country.
Cotality noted that housing markets were already losing momentum before the latest rate hikes began.
Independent economist Saul Eslake said the combination of higher borrowing costs and economic uncertainty linked to the Middle East conflict could deepen weakness in property prices.
Listings rise across major cities
New property listings increased to 39,319 over the four weeks to early May, roughly 4.7% above the five-year average.
While overall stock levels remain relatively low nationally, advertised listings are rising in Sydney, Melbourne and Canberra as demand weakens.
Cotality said the increase reflects softer buyer activity rather than a major surge in new housing supply.
Negative equity concerns emerge
The report warned recent homebuyers could face growing risks of negative equity if prices continue falling.
Borrowers who entered the market with smaller deposits, including participants in Australia’s 5% Deposit Scheme, are considered more vulnerable.
Lawless said recent buyers have had less time to build equity or reduce loan balances.
Perth and Brisbane remain strong
Despite weakness in larger eastern capitals, some markets continue outperforming.
Perth home values climbed 26% over the past year, while Brisbane and Adelaide have also posted strong long-term growth.
Cotality said Australia’s housing downturns have historically been relatively short-lived, with most lasting less than 12 months.
Affordability challenges remain
Housing experts cautioned that falling prices may not necessarily improve affordability for first-home buyers.
Nicole Gurran from the University of Sydney said many lower-income households may still struggle to secure loans during periods of economic uncertainty.
Meanwhile, auctioneer Dennis Nutt said investors are already watching closely for discounted buying opportunities.
What comes next
Markets will closely monitor whether further interest rate hikes accelerate declines in major cities.
Analysts also expect policymakers to remain sensitive to any sharp housing correction given the broader economic risks tied to falling property prices.
FAQs
Q1: Why is Australia’s housing market weakening?
Rising interest rates, affordability pressures and softer buyer demand are slowing the market.
Q2: Which cities are declining?
Sydney and Melbourne are already recording monthly price falls.
Q3: What is negative equity?
It occurs when a property’s value falls below the outstanding mortgage balance.
Q4: Are all housing markets weakening?
No. Perth, Brisbane and Adelaide continue showing strong growth.
Q5: Who could be most affected?
Recent buyers with small deposits may face the highest risks if prices decline further.
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