Home prices in Australia’s capital cities have begun to decline, with experts forecasting the downturn could last at least a year and reduce values by as much as 10%. The median capital city home price fell in May, the first drop since January 2025, driven by high interest rates and inflation squeezing buyer budgets, according to property data firm Cotality.
Sydney, Melbourne and Canberra saw median house prices end May lower than at the close of 2025. Auction success rates hit a new low for the year, with only 54.5% of homes sold after auction in the final week of May, preliminary data shows. The finalised rate is typically even lower, potentially marking the weakest clearance rates since the 2020 lockdowns.
The Reserve Bank of Australia has raised the official cash rate to 4.35% since February, returning it to 2024 highs and reducing borrowing capacity for potential buyers. Nationally, prices were flat over May, with slow growth in regional areas offsetting declines in the cities. Prices rose in Brisbane, Perth, Adelaide, Hobart and Darwin, but the pace of growth has slowed.
Cotality’s Tim Lawless said the May decline could be the start of a significant year-long fall, even in smaller cities that had previously enjoyed price booms. Analysts at Morgan Stanley have predicted values could slide 10%. Lawless described that forecast as reasonable, noting that prices had risen about 35% nationally over the past five years. He added that the market is unlikely to turn around until interest rates decrease, probably in the second half of next year.
The Australian government’s proposal to tighten property investor tax breaks has added uncertainty to the housing market. Housing Minister Clare O’Neil dismissed suggestions that the reforms are driving the price moderation, stating on ABC’s Insiders that interest rates are the primary factor. Meanwhile, rents continue to rise, with advertised rents increasing at an annual pace of 5.9% in 2026, the highest since September 2024, and vacancy rates falling to 1.5%.
