Australia's property market has tipped into the opening phase of a downturn, property data firm Cotality has warned, as three consecutive Reserve Bank rate rises collide with worsening affordability to drain momentum from the national market.
Combined capital city home values rose just 0.2 per cent in April — the slowest monthly pace since January 2025 — with the trend pointing firmly lower. Cotality research director Tim Lawless said a move into negative territory across the combined capitals index was now plausible within months. "Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals," he said. "Listings are picking up as demand softens, interest rates are rising, while affordability and serviceability pressures are biting."
Monthly change in dwelling values, April 2026. Source: Cotality Home Value Index.
Sydney dwelling values fell 0.6 per cent in April and now sit 1.0 per cent below their November 2025 peak. Melbourne fell by the same margin and is 2.3 per cent off its March 2022 high. The declines have been amplified by 75 basis points of rate increases so far this year — the third of which, delivered this week, pushed the cash rate to 4.35 per cent, unwinding all of 2025's cuts. As reported by Australian Broker News, Canstar estimates the cumulative impact of the three 2026 hikes adds $272 per month to a $600,000 variable rate loan.
More vendors are coming to market in response. New listings reached 39,319 nationally over the four weeks to early May, 4.7 per cent above the five-year average, though total stock at 127,821 properties remains below long-run levels. Cotality noted the increase reflected softening buyer demand rather than a surge in new supply.
Cotality also flagged the risk of negative equity for recent buyers — particularly those who entered with small deposits under the federal government's 5 Per Cent Deposit Scheme — though Mr Lawless said mortgage arrears were unlikely to rise sharply given historically strong labour markets and the three-percentage-point serviceability buffer built into loan assessments. Independent economist Saul Eslake noted that history suggested policymakers would move to limit any sustained correction: "Those periods of price declines have all been fairly brief because whenever they have occurred, governments have responded by doing things designed to stop house prices from falling."
Source: Cotality Housing Chart Pack, May 2026. Clearance rates: Cotality / domain.com.au.
The downturn is not uniform. Perth values have surged 26 per cent over the past year against Melbourne's 2 per cent, and the combined Home Value Index remains 33.7 per cent higher than five years ago. REA Group senior economist Eleanor Creagh said April marked "a clear turning point in the cycle," but added that supply shortages, population growth and a resilient jobs market would cushion the fall. Financial markets are currently pricing in at least two further rate rises in 2026, a prospect the FBAA has described as a "toxic mix" when combined with proposed changes to capital gains tax and negative gearing.
