Sydney and Melbourne house prices stall as buyer sentiment shifts – new data reveals

Key takeaways

Sydney and Melbourne house prices have recorded modest quarterly declines, signalling a shift after a sustained growth period. This reflects affordability constraints and reduced borrowing capacity starting to bite.

Buyer sentiment has changed, with less urgency and greater price sensitivity. Purchasers are becoming more selective and cautious in their decision-making.

Unit markets are proving more resilient, particularly in Sydney. Buyers are increasingly turning to more affordable property options as budgets tighten.

Perth continues to outperform all other capital cities. Strong population growth, tight supply, and relative affordability are driving significant price growth.

Australia’s housing market is no longer moving in sync. Diverging conditions across cities and property types are creating a more complex, multi-speed market.

After an extended period of strong growth, the latest data suggests Australia’s housing markets are beginning to move into a new phase, with the early signs of fatigue now becoming evident in Sydney and Melbourne.

Australia’s two largest housing markets are showing clear signs of strain, with Sydney and Melbourne recording their first quarterly house price declines in years as borrowing limits and shifting buyer sentiment caps further growth, according to Domain’s March Quarter House Price Report. 

• Sydney house prices edged down 0.04% ($772) over the March quarter to $1.79 million, ending a three‑year run of uninterrupted growth.
• Melbourne house prices fell 0.6% ($6,357) to $1.083 million, marking their first quarterly decline in 18 months and reversing part of the gains recorded late last year.

Table 1. House prices, quarterly and annual changes

The falls are modest, but they mark a turning point for Australia’s most expensive markets, where stretched affordability, reduced borrowing capacity and growing caution among buyers are now weighing on demand.

While annual price growth remains positive - 6.6% in Sydney and 4.4% in Melbourne - momentum has slowed.

These interest rate-sensitive markets are responding quickly as buyers reassess budgets, risk and how far they are willing to stretch.

Units hold up as buyers reset expectations

In contrast, Domain reports that Sydney and Melbourne’s unit markets are proving more resilient as buyers pivot toward more affordable options.

• Sydney unit prices rose 0.6% ($5,151) over the quarter to a record $848,227, extending growth to 13 consecutive quarters - the longest uninterrupted upswing since the early 2000s. Annual growth strengthened to 3.5%, the fastest pace in 1.5 years.
• Melbourne unit prices dipped 0.4% ($2,674) over the quarter, their first fall in nine months. Despite this, annual growth accelerated to 5.5%, the strongest in more than four years. Units have now outperformed houses for two consecutive quarters in Melbourne.

Table 2. Unit prices, quarterly and annual changes

The growing divergence between houses and units reflects a market in transition, with buyers becoming more cautious, more price‑sensitive and increasingly selective.

Perth tells a very different story

The report also highlights that while momentum is fading in Sydney and Melbourne, Perth continues to power ahead, reinforcing how uneven the national housing market has become.

• Perth house prices rose 5.7% ($63,615) over the March quarter to a record $1.179 million, extending the upswing to 14 consecutive quarters – the longest uninterrupted stretch since the 2000s. While growth has eased from last quarter's peak when Perth joined the ‘Million Dollar Club’, annual gains of 24.6% remain the strongest of any capital city.
• Perth’s unit market is also surging. Unit prices climbed 6.0% ($39,857) over the quarter to a record $700,351, with annual growth accelerating to 27.8% - the highest in the country and the strongest result since 2006. Units outperformed houses, underpinned by strong demand and tight supply.

The contrast underscores a housing market no longer moving in sync, with affordability pressures and borrowing capacity driving sharply different outcomes between the east and west coasts.

“The declines we’re seeing in Sydney and Melbourne is as much about changing sentiment as it is about borrowing limits,” said Domain’s Chief Residential Economist, Dr Nicola Powell.

She further explained:

“Buyers haven’t disappeared, but they’re behaving very differently. There’s less urgency, more negotiation and a much sharper focus on affordability.

In contrast, Perth remains a standout. Prices continue to rise strongly due to extremely low supply, above-average population growth and affordability constraints being far less binding than in Sydney and Melbourne.

Houses in the most expensive markets are feeling the interest rate pressure first, while units are holding up better as buyers reset expectations and look for safer, more accessible price points.”

Bottom line

While the headlines will focus on falling house prices in our two largest cities, the more important story is what sits beneath the surface.

We’re seeing a clear shift in buyer behaviour, borrowing capacity is biting, and the market is fragmenting rather than moving in a single direction.

For experienced investors, this is the point in the cycle where strategy matters more than ever;  unit markets are finding support, and opportunities are emerging for those who understand how to navigate a more nuanced, multi-speed property landscape.

About Adam Hubbard Adam Hubbard is a senior Wealth Strategist at Metropole and his many years of real estate and wealth creation experience gives him a holistic perspective with which he helps his clients safely grow their wealth through property.