Key takeaways
Cotality’s Home Value Index fell -1.1% in September, marking the sixth straight month of falling values and taking cumulative declines to 5.2% below March's peak.
Brisbane saw the sharpest monthly drop among capitals in September (-1.5%), edging past Sydney’s -1.4% fall. Darwin (0.4%) was the only housing market to avoid a fall over the month.
Across the capitals, almost every suburb (97%) has recorded value declines over the past three months, demonstrating the broad-based scope of the negative housing cycle.
Housing values are likely to face continue falling into 2027 from higher rates, though low supply and a resilient labour market should cushion against a severe crash.
Cotality’s national Home Value Index fell 1.1% in September, the sixth straight month of falling values.
On a national basis, dwelling values are now 5.2% below their record highs from March 2026.
Every capital city except Darwin recorded a fall in home values through the first month of spring, along with 71% of the regional SA3 sub-markets recording a decline in values over the month.
Almost every capital city suburb was down in value over the past three months.
97% of capital city suburbs were down in value over the three months to end of September, highlighting the broadbased scope of this negative housing cycle.
The housing downturn reflects a combination of affordability constraints, higher interest rates, elevated living costs, and weaker consumer sentiment, all of which have reduced purchasing capacity and dampened buyer demand.
Brisbane recorded the sharpest monthly decline
Brisbane recorded the sharpest monthly decline among the capitals in September, with values down 1.5%, edging past Sydney's 1.4% fall.
The result highlights how sharply conditions have shifted in what had previously been one of the strongest performing housing markets.
Melbourne is now showing a milder rate of decline, at -0.7%, than each of the mid-sized capitals where values were down more than 1% in September.
Sydney continues to lead the housing correction, with values now 8.6% below their February peak.
The decline is marginally deeper than the equivalent stage of the 2022-23 downturn, highlighting how rapid demand has weakened across the nation's largest housing market.
Melbourne values are 7.2% below their cyclical high in November last year and 7.5% below the record high from March 2022.
On an annual basis, the national outcome has been flat (0.0% change in values), but some markets are still showing strong annual gains, reflecting the period of growth through 2024 and early 2026.
Perth (10.1%) and Darwin (11.9%) have recorded the highest annual gains, while Sydney (-7.0%) and Melbourne (-6.2%) are well into negative annual change and Canberra home values are also lower over the year, down a more modest 1.6%.
Regional markets continue to prove more resilient than the capitals, with regional dwelling values up 5.6% annually compared with a 1.8% annual decline across the combined capitals.
Housing turnover has also eased
Housing turnover has also eased, with estimates of the number of home sales over the past three months tracking 19.1% lower than a year ago nationally and 13.3% below the previous five-year average.
The volume of home sales relative to a year ago was down most sharply in Brisbane (-27.2%), with Sydney (-26.5%) and Perth (-24.2%) also recording an annual decline in sales of more than 20%.
The sharp drop in sales has implications for the broader economy, with lower sales likely to hit some retail segments as well as stamp duty revenues for state governments.
As housing demand continues to ease, advertised supply levels have accumulated
As housing demand continues to ease, advertised supply levels have accumulated, despite a reduced flow of fresh listings coming to market.
Across the combined capitals, the flow of new listings added to the market was 9.2% lower than a year ago, but total inventory was tracking 23.1% higher.
Despite fewer new listings entering the market, inventory levels have risen sharply because the rate of sale has fallen even faster.
Capital city homes are now taking a median of 39 days to sell compared with 23 days a year ago, resulting in an accumulation of advertised supply.
The lift in available stock is improving choice for buyers, but ironically, many prospective buyers don’t have the confidence or financial capacity to buy at the moment.
Outlook
Housing market conditions are likely to remain under downward pressure over the coming months, with the latest interest rate increase adding to a formidable set of demand-side headwinds.
The RBA’s decision to lift the cash rate to the highest level in fifteen years will weigh on housing demand through several channels.
Higher mortgage rates will reduce borrowing capacity, making it harder for some prospective buyers to satisfy loan serviceability assessments and add to repayment pressures for existing mortgage holders.
With household debt at high levels, borrowers are far more sensitive to interest rates compared with almost fifteen years ago when interest rates were previously this high.
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Borrowers are not only facing higher mortgage costs, but also an extended period of elevated living expenses and negative real income growth.
Together, these pressures are narrowing the pool of buyers able to qualify for a mortgage and reducing the amount they can afford to pay.
1. Affordability remains a significant barrier to housing demand.
Although values have moved lower across most markets, the improvement in purchasing affordability has been modest relative to the earlier rise in home values and higher mortgage rates.
Dwelling values remain high relative to household incomes across most capital cities, while the deposit hurdle continues to be substantial, particularly for first home buyers.
2. Persistently weak consumer confidence is likely to remain a constraining factor on housing market activity.
Household confidence remains deeply pessimistic, and the recent rate increase, along with the possibility of another in November, is likely to reinforce concerns regarding family finances, inflation, and the broader economic outlook.
Historically, periods of weak sentiment have been associated with lower housing turnover, as households delay highcommitment decisions such as purchasing a home.
3. Changes to taxation policies announced in the Federal Budget have added another layer of downside risk.
Less favourable negative gearing and capital gains tax arrangements have already seen a sharp reduction in investor demand, as well as decreased activity from other sectors of the market as confidence remains glum.
Although these policy changes are intended to redirect investment towards newly built dwellings, the near-term impact has been a decline in both investor and, to a lesser extent, owner occupier participation.
This has resulted in a more pronounced reduction in aggregate housing demand than would otherwise have occurred.
The weaker demand environment is becoming increasingly visible in selling conditions.
Homes are taking longer to sell, auction clearance rates have held below average and advertised stock levels have risen
across many markets.
Buyers generally have more choice, reduced urgency, and greater scope to negotiate, while vendors are having to become more realistic about their price expectations.
Despite the challenging outlook, there are several factors that should help to contain the downturn
1. The labour market remains reasonably tight
The labour market remains reasonably tight, although conditions are gradually loosening.
Relatively low unemployment continues to support household income security and should limit the risk of a material rise in mortgage arrears or forced selling.
However, a more pronounced deterioration in labour market conditions would add to the downside risks by weighing on income growth, confidence, and housing demand.
2. Persistently low levels of newly built housing supply also remain an important offset
Elevated construction costs, capacity constraints, and project feasibility challenges continue to limit the flow of new homes into the market.
Even where approvals and commencements improve, lengthy development and construction timelines mean it will take time for this uplift to translate into completed dwellings.
3. More broadly, the barriers to achieving a material increase in housing supply remain substantial.
High development and infrastructure costs, limited construction capacity and challenging project economics are likely to constrain the delivery of new housing for some time.
These factors should provide some support for housing values, particularly in markets where advertised supply remains
relatively low.
4. Overall, the balance of risks has shifted more firmly to the downside.
Higher interest rates, reduced borrowing capacity, acute serviceability and affordability constraints, weak sentiment, cost-ofliving pressures, and less favourable tax settings for investors are all likely to weigh on demand.
However, a still-resilient labour market and persistently low levels of new housing supply should reduce the risk of a sharper correction.
The most likely outcome remains a gradual drift lower in housing values rather than a material downturn, with conditions continuing to vary significantly across regions, price points, and buyer segments.
