How Will You Know the Property Market Has Bottomed? The Signals I’m Watching

Australian home values have now fallen for seven months in a row, auction clearance rates are stuck in the 40s and some economists are describing this as the biggest property downturn in 40 years.

So it's no surprise that the question I'm being asked most by investors right now is when it will all end.

The honest answer is that nobody will know the exact bottom until well after it has passed, because the low point of a property cycle only becomes obvious in the rear-view mirror.

But that doesn't mean you're flying blind, because markets leave a trail of clues as they turn, and if you know which ones to watch, and the order they tend to show up in, you can position yourself well ahead of the crowd.

Where the market sits right now

Let's start with a clear-eyed look at the numbers, because there's no point pretending this is a soft patch.

Cotality’s national Home Value Index (HVI) was down 1.2% in October, taking the downturn into a seventh consecutive month.

The pace of the decline is faster than any previous downturn in the past 40 years, with capital city values down 8.1% in seven months.

The prices of both Sydney houses and apartments declined by -1.5% over the past 5 years, and they are now 10.1% below their February 2026 peak, having gradually weakened over the year.

Meanwhile, Melbourne property values have dropped -1.5% over the past 5 years and dropped  -2.7% over the past 3 months, and  are still -8.2% below their March 2022 peak.

Activity has dried up too, with national sales over the past three months running 19.1% below a year earlier and capital city homes now taking a median of 39 days to sell, compared with 23 days a year ago, and auction clearance rates, which are a good time indicator of buyer and seller sentiment, remain in the 40% range.

Behind all of this sits the Reserve Bank which lifted the cash rate to 4.85%, its highest level in 18 years. This marks the fifth interest rate increase in 2026.

Not surprisingly, the forecasts from many property commentators, have turned gloomy, with Cotality's Tim Lawless suggesting a peak-to-trough fall of 10% to 15% is a reasonable estimate.

Why the bottom is only obvious in hindsight

Obviously, property markets don't turn on a single day, and there's no announcement when they do so.

They roll over slowly, with some buyers drifting back while others remain nervously on the sidelines, and with some vendors capitulating while others refuse to meet the market.

On top of that, most of the price data we rely on is backward looking.

A home that sells today may not settle for six weeks, and it's only once that sale is recorded that it flows into the price indices. This means the official numbers will keep telling you values are falling for a while after the market has quietly turned.

That's why the investors who perform best in a downturn don't wait for the data to confirm the bottom, but instead learn to read the leading indicators that move first.

The signals tend to arrive in a predictable order

Over my 5 decades of investing, I've watched many property cycles come and go, and while each one has its own personality, the recovery signals tend to appear in much the same sequence.

Think of them as moving from leading indicators to lagging ones.

1. Interest rates stop going up

The first thing that needs to change is the direction of interest rates, or, more precisely, the market's expectation of where they're headed.

Many people assume we need rate cuts before prices recover, but history suggests otherwise.

In the last downturn, the RBA started hiking in May 2022 and kept going through to November 2023, yet national home values bottomed in early 2023 and were rising for most of that year even as rates were still climbing.

What buyers needed back then was confidence that the end of the hiking cycle was in sight, because once they could see a ceiling on their mortgage repayments, they were prepared to act again.

Similarly, the 2017-2019 downturn ended around mid-2019, when a rate cut and a loosening of APRA's lending buffer arrived within weeks of each other, and the market responded almost immediately.

So the signal I'm watching for is when the RBA shifts from a tightening bias to a neutral one, and when wholesale funding costs and fixed mortgage rates start drifting lower, because the banks usually move before the Reserve Bank does.

2. Buyer sentiment lifts off the floor

Property is a confidence game, and buyers need to feel secure in their jobs and finances before they'll commit to the biggest purchase of their lives.

The Westpac-Melbourne Institute consumer sentiment survey, and in particular its "time to buy a dwelling" and house price expectations readings, tend to turn before transactions do.

When these measures stop falling and begin trending higher for a few months in a row, it tells me that the emotional temperature of the market is starting to change.

3. Finance approvals start rising

Sentiment is one thing, but money talks.

The ABS lending indicators show the number and value of new home loan commitments each month. A sustained lift in new lending, especially among owner-occupiers, is one of the most reliable early signs that buyers are preparing to act.

Mortgage brokers often notice this before the official data does, because the first sign of a recovery is usually a lift in pre-approval enquiries from people who have been sitting on their hands.

4. Auction clearance rates hold at a higher level

Auction results are about as close to real-time data as we get in property, which is why they're watched so closely.

As a rough guide, clearance rates in the high 50s suggest a reasonably balanced market, while results consistently above 60% generally point to a market where prices are rising.

The key word is consistently, because what I'm looking for is a clearance rate that climbs and then holds over a period, rather than a single strong Saturday.

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I also look beneath the headline number at withdrawal rates and auction volumes, because a clearance rate that rises while more vendors bring their homes to market tells you much more than one that improves on very thin numbers.

5. The mood at the coalface changes

This is where people working in the market every day have a real advantage over those reading the data.

Our buyers' agents at Metropole often feel the shift before it shows up anywhere else, through more people at open homes, more registered bidders at auctions and fewer properties being passed in.

Vendor discounting starts to shrink, days on market stop blowing out and the stock that has been sitting unsold gets absorbed.

Another tell is that selling agents become less willing to accept conditional offers, and buyers lose the ability to dictate terms such as long finance clauses or extended settlements.

6. The price indices finally confirm it

Last of all come the price indices, which will record a few months of flat results before they start rising.

Cotality's daily index will usually flatten first, followed by the monthly Home Value Index, with the ABS figures confirming the turn even later.

One measure I'd encourage you to watch is the breadth of the decline.

Right now values are falling in 97% of capital city suburbs, and when that share starts to drop meaningfully, it's an early sign that the downturn is losing its grip, even if the headline index is still in negative territory.

There won't be one bottom

When people ask me when the market will bottom, I usually reply by asking which market they mean.

Even in this downturn, Perth values are still around 3.9% higher than a year ago and Darwin values are up almost 9.7%, while Sydney and Melbourne are both down over 9.7 and 7.6% respectively for the year.

Each city entered this cycle at a different point, with varying levels of affordability, population trends and local economies, so each will find its floor at a different time.

My personal view is that Melbourne could surprise a few people, because it has already spent four years underperforming, its affordability relative to Sydney is the best it has been in a long time, and much of its adjustment has already happened.

The bottom also varies by market segment.

In my experience, well-located family homes and quality townhouses in established inner and middle-ring suburbs, the type of properties owner-occupiers aspire to buy, tend to find support sooner, while high-rise apartments, investor-dominated estates and properties in secondary locations are usually the last to recover.

The signals that will lead you astray

Just as there are reliable signals, there are others that regularly mislead investors.

The first is media headlines, which tend to remain negative long after the market has turned, because journalists report on lagging price data and fear sells better than recovery.

The second is a single strong week at auction, especially around long weekends and holiday periods, when volumes are low and results are easily distorted.

The third is suburb-level data that's been cherry-picked to tell a story, along with anecdotes about one distressed sale that gets repeated as if it represents the whole market.

And the fourth is your own emotions, because when everyone around you is gloomy, it feels much safer to wait than to act.

Why I wouldn't wait for every box to be ticked

By the time all six signals line up and the newspapers confirm that prices are rising again, the opportunity has largely passed.

Buyers will return to open homes, vendors will have regained their confidence, and you'll be competing against many of the same people who told you to wait.

The best buying conditions are usually found when the market still feels uncomfortable, with plenty of choice, little competition and motivated vendors who are prepared to negotiate.

That's exactly the environment we're in now.

I'm not suggesting anyone should rush in, but I am suggesting that time in the market beats timing the market, and that trying to pick the exact bottom is a distraction from the decisions that truly build wealth.

If you buy an investment-grade property in a location with strong long-term fundamentals, it won't matter much whether you bought a few months before or after the bottom when you look back on it in 10 or 15 years.

What will matter is that you bought the right property and that you were able to hold onto it.

Make sure you're still standing when the market turns

That brings me to what I believe is the most important point of all.

Capital growth is what builds your wealth, but cash flow is what keeps you in the game long enough to benefit from it.

With the cash rate at a multi year high, now is the time to stress-test your portfolio against higher repayments, review your buffers and make sure you're not relying on a quick rebound to survive.

Investors who have a cash buffer, a sensible debt structure and a long-term plan will get through this downturn and be well positioned for the next upturn, while those who are overstretched may be forced to sell at exactly the wrong time.

What this means for you

Nobody will ring a bell when the market hits bottom, and by the time the experts agree it has, prices will already be on their way up.

So rather than trying to predict the exact low point, I'd encourage you to watch for signals in the order they tend to arrive, focus on owning the right properties in the right locations, and ensure your finances can withstand a little more pain if it comes.

Downturns are uncomfortable, but they've always been when long-term investors lay the foundations for their next leg of wealth creation.

If you'd like an objective view of where your portfolio stands in this market, and a strategic plan for what to do next, the team at Metropole Wealth Advisory can help you work through your options and stress-test your position before the market turns.

Click here now and organise a time to have a chat with one of our wealth strategists to understand how you can take advantage of the current stage of the property cycle.