House prices in Sydney and Melbourne have fallen as interest rate rises and economic uncertainty from the conflict in Iran deter buyers, new data shows. The slowdown, which began in December, has continued into the first quarter of 2026, driven largely by Reserve Bank of Australia (RBA) cash rate hikes in February and March.
According to Cotality data, Sydney's median home price dropped by $4,000 to $1,295,387, while Melbourne's fell by $5,000 to $828,249. In both cities, the top end of the market saw declines, with Sydney's top-priced quarter falling 2.4% and Melbourne's top end dropping 1.9%. However, lower-priced properties saw modest gains, with Sydney's bottom quarter rising 2.5% and Melbourne's lower end up 0.6%.
The outbreak of war in Iran and a second rate rise had an immediate impact in March, according to Charles Touma, a Redfern-based realtor with Ray White. “February was great, I sold some really good properties at really good prices. Then March fell off a cliff,” he said. Consumer confidence hit record lows in the final two weeks of March, per ANZ and Roy Morgan surveys.
Nationally, buyer activity has eased, with Cotality estimating fewer homes sold in the first quarter of 2026 than the same period in 2025. Auction clearance rates fell, with only 61% of properties sold at auction in the final week of March, the lowest preliminary rate since December 2022. Supply was unusually strong on the east coast, with 4,062 auctions nationwide that week, the highest since December 2021.
In contrast, Perth saw the strongest growth, with home prices rising 7.3% to $1,017,698, supported by low supply. New housing loans picked up in February before the second rate hike, but borrowing is expected to slow as markets predict two more rate rises this year, possibly as soon as 5 May.
