Property Markets in Sydney and Melbourne Experience Downturn as Buyers Retreat
The median house price in both Sydney and Melbourne has declined over the first three months of 2026, marking a significant shift in Australia's property landscape. This downturn is attributed to consecutive interest rate hikes by the Reserve Bank of Australia and economic uncertainty stemming from the conflict in Iran, which have collectively spooked potential buyers and led to a slowdown in market activity.
Data Reveals Nationwide Slowdown in Price Growth
According to recent data from Cotality, a leading property analytics firm, growth in house prices has slowed across the country during the last quarter. The slowdown, which began in December, has been exacerbated by the Reserve Bank's interest rate increases in February and March, making median homes less affordable for many Australians. Tim Lawless, Cotality's research director, noted that falling auction clearance rates and an increase in advertised supply are giving buyers more choice and reducing urgency in negotiations.
In Melbourne, the median home price fell by $5,000 to $828,249 over the period, with the eastern suburbs recording the most substantial drops. Interestingly, properties at the lower end of the market saw a modest value increase of 0.6%, while the top end experienced a decline of 1.9%. Sydney's median home price also decreased, dropping $4,000 to $1,295,387. The bottom-priced quarter of houses in Sydney saw values rise by 2.5%, driven by strong demand in the city's west and south-west, but the top-priced quarter fell by 2.4%.
Immediate Impact of Geopolitical and Economic Factors
Charles Touma, a realtor based in Redfern with Ray White, observed that the outbreak of war in Iran and the second interest rate rise had an immediate effect in March. He described February as a strong month for sales, but March saw a dramatic decline, with only four out of 21 auctions in the Paddington to Waterloo area of inner Sydney resulting in sales. The rest were either passed in or withdrawn, highlighting the market's volatility.
Consumer confidence hit record lows in the final two full weeks of March, as reported by ANZ and Roy Morgan surveys. This drop in confidence has contributed to reduced buyer activity nationally, with Cotality estimating that fewer homes were sold in the first three months of 2026 compared to the same period in 2025. Supply on the east coast has been unusually strong, with 4,062 auctions held in the final full week of March—the highest number since December 2021. However, preliminary data shows only 61% of those auctions resulted in sales, the lowest rate since December 2022.
Regional Variations and Future Outlook
While Sydney and Melbourne face downturns, Perth has seen the strongest growth, with home prices rising 7.3% or $69,000 in the quarter to reach $1,017,698. Lawless commented that this pace of growth is unsustainable but continues to be supported by low supply in the region. Nationally, new housing loans picked up in February before the Reserve Bank's second interest rate hike, with housing credit growing at an annual rate of 7.1%, the fastest since 2022.
Looking ahead, the pace of borrowing is expected to slow as markets predict two more rate rises later in the year. The Reserve Bank could raise rates as soon as 5 May during its next board meeting. Touma remains optimistic, describing the current market as a transition period where vendors may struggle to sell, but new entrants in May and June will approach with adjusted expectations. Overall, the property market is navigating a complex interplay of economic policies and global events, shaping buyer behavior and pricing trends across Australia.
