Here is the formatted article.
Australian Housing Market in Decline: Clearance Rates Sink Below 50%
National auction clearance rates have fallen below 50% for multiple consecutive weeks, and home values are declining across several major capital cities. Analysts attribute the downturn to a combination of factors, including consecutive interest rate rises by the Reserve Bank of Australia, proposed federal tax changes to negative gearing and capital gains tax, and broader economic uncertainty. Data indicates that price falls are not uniform, with certain segments and cities showing varying performance.
Market Indicators and Trends
Auction Clearance Rates
The weighted average auction clearance rate across Australian capital cities fell below 50% for the first time since April 2020 and has remained under that threshold for three consecutive weeks. According to property research firm Cotality, the preliminary national clearance rate was 49.8% for the most recent week, with final figures expected to be revised lower, potentially to the low-to-mid 40% range.
A clearance rate above 60% is generally considered a balanced market.
- Sydney: Preliminary clearance rates have ranged between 47% and 49%, the lowest levels since April 2020. In one week, 166 of 645 auctions were withdrawn.
- Melbourne: Clearance rates have been recorded around 50.2% to 50.6%, the weakest performance since September 2021.
- Brisbane: Clearance rates fell to approximately 39% to 40%, the lowest among capital cities.
- Adelaide: Clearance rates varied, ranging from 40% to 68.7% depending on the week.
- Perth: Clearance rates of 40% were reported.
- Canberra: Clearance rates ranged from 47.1% to 48%.
Home Values
- National: The combined capital city Home Value Index rose 0.2% in April before falling 0.4% in May and another 0.4% in June. The national index peaked in March and declined 0.7% through the June quarter.
- Sydney: Dwelling values fell 0.6% in April, 0.9% in May, and 1.2% in June. Values are 1.0% below their November 2025 peak. Domain forecasts a decline of 3-7% for the 2027 financial year.
- Melbourne: Values declined 0.6% in April, 1.0% in May, and sit 2.3% below their March 2022 high. Domain forecasts a decline of 4-8% for the 2027 financial year.
- Brisbane: Values increased by 0.5% in a recent four-week period. Growth was 1.3% in the June quarter, down from earlier rates. Domain forecasts growth of 3-7% for the 2027 financial year.
- Adelaide: Values rose 0.3% in a recent four-week period, the lowest in over a year. Domain forecasts growth of 4-8% for the 2027 financial year.
- Perth: Values rose 0.9% in a recent four-week period, which is less than a third of the rate at the end of the previous year. Domain forecasts growth of 5-9% for the 2027 financial year.
- Canberra: Values declined 0.4% in a recent month. Domain forecasts a decline of 0-4% for the 2027 financial year.
Market Transaction Volumes
Capital city sales volumes fell from 32,863 in May 2025 to 27,342 in May 2026, a decline of approximately 17%. Home sales from April to June 2025 were 16.2% lower than the same period in 2024 and 14.5% below the five-year average. New listings reached 39,319 properties in the four weeks to early May, which was 4.7% above the five-year average. Total listings nationally were 127,821.
Contributing Factors
Interest Rate Policy
The Reserve Bank of Australia has raised interest rates three consecutive times in the current cycle. The cash rate was held at 4.35% at the June 2025 meeting. RBA Governor Michele Bullock stated that further rate rises remain possible. The rate hikes have reduced borrowing capacity for potential buyers.
Federal Tax Changes
The May federal budget proposed changes to property taxation, scheduled to take effect from July 2027:
- Negative gearing on residential property will be restricted to new builds.
- A minimum 30% tax on capital gains will be implemented, replacing the existing 50% capital gains tax discount with an inflation-based system.
- Westpac analysts forecast a 34% decline in new investor activity as a result.
Economic and Geopolitical Uncertainty
Analysts and government officials have cited broader economic conditions, including inflation, cost-of-living pressures, and geopolitical tensions, as factors contributing to reduced buyer confidence.
Expert Analysis and Statements
- Tim Lawless, Cotality Research Director: Stated that the market was already slowing before the recent rate hikes due to waning confidence, rising inflation, and worsening affordability. He described the low clearance rates as indicating a "mismatch between buyer and seller pricing expectations."
- Nerida Conisbee, Ray White Chief Economist: "Buyer demand has weakened materially compared with this time last year. The market has shifted from urgency to caution."
- Diana Mousina, AMP Deputy Chief Economist: Forecasts house prices will drop by approximately 5%. She described this as a "needed correction" after a period of significant growth.
- Saul Eslake, Independent Economist: Stated that higher interest rates and greater caution among buyers could lead to a downturn, despite a mismatch between underlying demand and supply.
- Paul Bloxham, HSBC Chief Economist: Predicts national property prices could fall up to 8% by the end of 2027.
- Treasurer Jim Chalmers: Cautioned against overreacting to short-term data, comparing the situation to the 2022 rate rise cycle.
Impact on First Home Buyers and Government Schemes
Home Guarantee Scheme (5% Deposit)
The government's First Home Guarantee scheme, which allows eligible buyers to purchase with a 5% deposit, was expanded in October 2023 with the removal of income caps, property price caps, and scheme place limits.
- Usage: 22,921 guarantees were issued in the four months following the expansion, a 75% increase from the previous four months.
- Price Impact: Cotality research found that in the six months following the expansion, homes under government price caps appreciated 6.7%, compared to 3.6% for higher-priced properties. In Sydney, homes below the cap rose 4.1% while higher-priced properties fell 1.1%.
- Analysis: Tim Lawless stated the scheme likely "temporarily lifted home ownership rates" but warned it "works opposite" to improving housing affordability by boosting demand without addressing supply. Economist Saul Eslake noted the scheme likely benefited people who "would have bought anyway" and that government actions allowing higher spending on housing tend to "result in higher housing costs."
- Declaration by Housing Minister's Office: A spokesperson for Housing Minister Clare O'Neil stated the government "makes no apologies for helping hundreds of thousands of first home buyers while we fix a supply problem generations in the making."
First Home Buyer Activity
Data shows that in the March quarter of 2026, the number of mortgages issued to first home buyers fell by 4.3% to 30,241. Health Minister Mark Butler stated that real estate agents reported increased attendance by first-home buyers at auctions.
Negative Equity Concerns
Data suggests that declining home values are concentrated in the high-end market, potentially reducing the risk of negative equity for first-time buyers with small deposits. In the three months to May, the cheapest dwelling values rose 0.4% in Sydney and fell 0.2% in Melbourne, performing better than upper-quartile and middle-market segments.
- Gerard Burg, Cotality Head of Research: Stated that first-time buyers likely purchase in the bottom 25% of the market. He noted that some recent purchasers near the $1.5 million Sydney price cap could be at risk but that a "large-scale crisis is unlikely."
- Tim Lawless: Stated instances of negative equity are likely "rare" but the market's recovery timeline is uncertain.
- Saul Eslake: "Negative equity is only a problem for those who need to sell in the short term."
Housing Supply and Outlook
Supply Constraints
The Reserve Bank Governor stated that chronic housing undersupply will continue for at least the next two years. Vacancy rates remain near record lows. Building approvals rose 17% in the March quarter 2025 compared to the June quarter 2024. The federal government projects net overseas migration of nearly 1 million people over four years.
Market Outlook
Analysts generally do not forecast a price crash due to ongoing housing supply shortages and population growth. Forecasts include:
- HSBC: National prices could fall up to 8% by end of 2027.
- AMP: Home prices could fall approximately 5% over the coming year.
- SQM Research: Sydney prices could fall up to 9% and Melbourne up to 7% in 2026.
- Domain: Sydney and Melbourne to decline 3-8% in 2027; Brisbane, Adelaide, Perth to see growth.
Cotality research director Tim Lawless stated it "would not be unusual" for national values to shrink 8-10%. He noted that past data shows combined capital city home values fell by no more than 8.2% over the past four decades, though individual capitals have recorded larger falls.
Regional Variations
The market is not uniform. Suburbs with the largest year-to-date dwelling value declines include Malabar (-12.3%), Chifley (-9.9%), and South Coogee (-9.7%) in Sydney, and Deepdene (-11.3%) in Melbourne. Meanwhile, Perth values rose 26.0% over the past year, and Brisbane and Adelaide recorded growth of 80-90% over five years.