House prices in Sydney and Melbourne are falling as interest rate rises and economic uncertainty caused by conflict in the Middle East have driven buyers from the market, new data shows. The slowdown that began in December has continued into 2026, largely due to consecutive cash rate hikes by the Reserve Bank of Australia (RBA) in February and March.
In Melbourne, the top end of the market suffered a 1.9% decline in the first three months of 2026, while lower-priced properties saw a modest 0.6% rise. The city's median home price fell by $5,000 to A$828,249, with eastern suburbs recording the biggest drops.
Sydney's median home price fell by $4,000 to A$1,295,387 over the same period. The bottom quarter of the market saw a 2.5% increase, driven by strong demand in the west and south-west, but the top quarter dropped by 2.4%.
The outbreak of war in Iran and the second interest rate rise had an immediate impact in March, according to Charles Touma, a realtor with Ray White in Redfern. 'February was great, I sold some really good properties at really good prices. Then March fell off a cliff,' he said. Auction clearance rates slumped, with only 61% of properties sold nationally in the final week of March, the lowest preliminary rate since December 2022.
Nationally, buyer activity has eased, with Cotality estimating fewer homes sold in the first quarter of 2026 than in the same period in 2025. Supply has been unusually strong on the east coast, with 4,062 auctions in the final full week of March, the highest since December 2021. Meanwhile, Perth bucked the trend, with home prices rising 7.3% to A$1,017,698, though Tim Lawless of Cotality called that pace 'unsustainable'.
New housing loans had picked up in February before the RBA's second rate hike, but borrowing is expected to slow as markets predict two more rate rises later this year. The RBA could raise rates again as soon as 5 May.
