Headwinds for the Australian residential property market persisted over the past month, with value declines broadening and market conditions weakening further. Weakness in residential property, our largest single asset class by value, will likely weigh on the broader economy too.
Economic growth has already slowed on a quarterly basis, and the Reserve Bank of Australia (RBA) expects it will continue to slow over the coming quarters.
The labour market remains tight with an unemployment rate well below five per cent, however the unemployment rate is higher than a year ago and is expected to rise. Furthermore, although job creation is still positive, part-time job growth has been much stronger, which has resulted in an increase in underemployment. Job vacancies remain elevated although they have trended lower over recent years.
The rate of inflation remains elevated, and the RBA is currently not forecasting it will return to the two to three per cent target range until late next year and won’t hit the mid-point of that range (2.5 per cent) until the first half of 2028. While inflation stays elevated, further rate rises remain possible; indeed, the forecast return to target assumes one more increase is more likely than not.
Consumers remain much more pessimistic than optimistic, while business confidence is also negative and business conditions are continuing to trend below long-term average levels. Despite that pessimism, household spending remains elevated and discretionary spending growth is accelerating – a pattern that sits oddly with the cost-of-living narrative. Whether it holds over the coming months is worth watching.
Dwelling approvals, commencements and completions remain well below target levels and increasing construction costs and higher interest rates for longer are likely to weigh on new dwelling supply over the coming quarters and years. So will changes to SMSF lending for residential, which was integral to making many new projects viable to commence.
The RBA Governor recently stated that the large pipeline of non-residential work, particularly data centres, but also infrastructure in certain regions, is seeing competition for trades that would typically build residential housing. The resulting shortage of trades makes building at volume harder still.
The latest quarterly mortgage lending data for June 2026 was also released during the month and it showed a further slowing of mortgage demand. Both new lending and refinances fell sharply in number and value terms, although all measures remain above the same quarter last year.
With new policies targeted specifically at investors, there were much larger declines in lending to investors over the quarter. Lending to owner-occupier non-first homebuyers also fell, with the number of loans to owner-occupier first homebuyers falling but the value of lending rising.
The data points to a broad slowdown in loan numbers. First homebuyers are fewer, but those buying are borrowing much more; their average loan size rose 3.3 per cent over the quarter and 10 per cent over the year, well ahead of the changes for investors and non-first-homebuyer owner-occupiers.
With the weakness in values expected to continue, it’s likely that lending will also continue to slow over the coming months.
National housing market conditions have also continued to ease. The latest Cotality Home Value Index data found that nationally, dwelling values fell by 0.7 per cent over the month and were 1.9 per cent lower over the three months to July 2026. In each instance, the decline in values was the largest since December 2022.
Housing market conditions were already slowing before the federal budget, with values already falling in Sydney and Melbourne and slowing in most others. However, the tax changes around investment properties have clearly exacerbated the slowdown and reduced buyer demand.
Over the past three months, values have fallen in all capital city markets except Adelaide, Hobart and Darwin, and in the rest-of-state areas of New South Wales and Victoria, with Queensland values unchanged. Even where values have still risen, the rate of growth has typically slowed.
The rate of value growth weakness is more prevalent in the capital city markets than it is in regional markets, and houses are seeing greater weakness than units. This reflects the largest falls at the expensive end, while the most affordable properties are still recording growth, albeit more slowly.
The slowdown in dwelling-value growth has come alongside a decline in sales volumes, reflecting reduced buyer demand. According to estimates from Cotality, sales volumes over the three months to July 2026 were 15.6 per cent lower than over the same three-month period last year. Sales volumes are lower in both the capital cities and regional markets, but capital city volumes have experienced a much larger decline of 21.2 per cent compared to a 5.3 per cent fall in regional markets.
Sydney, Melbourne, Brisbane, Perth and regional Western Australia have recorded falls in sales in excess of 20 per cent compared to a year ago. Only Adelaide, Hobart, Darwin, Canberra, regional New South Wales and regional South Australia have recorded increases in sales volumes relative to a year ago.
According to data from SQM Research, there were 72,806 newly-listed properties for sale nationally in July, which was 5.1 per cent higher over the month and 15.9 per cent higher than in July 2025. Despite slower market conditions and a seasonally slower period of the year, a relatively high number of properties are coming to the market. Only Sydney and Hobart had fewer new listings than a year ago, with all other capital cities outside of Perth and Canberra seeing double-digit rates of growth in new listings.
The total number of properties listed for sale reached 278,984 in July 2026, which was 12.4 per cent higher over the month and 22.8 per cent higher than a year ago. SQM Research also reports it was the largest annual increase in total listings in more than a year. Total listings are now the highest they’ve been since 2020 with Hobart the only capital city seeing fewer total listings than a year ago and all other capital cities except Darwin seeing double-digit annual rates of growth.
The total volume of stock available for sale is now close to a record high in Sydney and Canberra and at a historic high in Melbourne. Listing volumes are trending lower in Hobart, and although total listings are still historically quite low in the other capital cities, they are trending higher quickly and are now the highest they’ve been in several years.
With buyer interest subdued, sales volumes well down on a year ago and listings high and rising, sellers are finding it much harder to secure a buyer. Many properties simply will not sell, and for many others the only path to a sale is a price cut, which will put further downward pressure on prices. Whether vendors are willing to do that remains to be seen, but other data points to properties taking longer to sell and discounting levels increasing.
The median time on market in July 2026 was 44 days, which was up from 27 days a year ago and the highest time on market figure, outside of seasonal results in January, since June 2020. Capital city days on market has increased to 42 days from 24 days a year ago, while in regional areas it has risen to 47 days from 33 days.
Most capital cities and rest-of-state areas have seen their median days on market increase over the past year. Notably, Brisbane, regional Queensland, Sydney, Melbourne and Perth have recorded the largest increases. Sydney and Melbourne also have some of the longest median days on market of any capital cities or regional areas.
The magnitude of discounting by vendors has also increased, with the typical sale in July 2026 seeing a price reduction of four per cent compared to 3.3 per cent a year ago. This is the largest vendor discount since May 2023.
Hobart and regional Tasmania are the only capital city and rest-of-state markets in which discounting levels have reduced over the past year. The largest increases in discounting relative to a year ago have been in regional Western Australia, Perth, Brisbane and Sydney. Melbourne had a lower rate of discount relative to the other capital cities, which likely reflects the fact that the market has been weak for several years, so vendors tend to be more realistic on their sale price expectations.
National rents have increased by 0.2 per cent over the month, 1.2 per cent over the past three months and 5.9 per cent over the past year. There has been a notable slowing of rental growth on a quarterly basis from earlier this year, however that is something we often see occur seasonally and the rate of growth over the past three months has been stronger than over the same three months last year. The annual rate of rental growth has remained steady.
The strongest rental increases over the past year have been in Darwin, regional Tasmania, regional Western Australia and Perth. The slowest growth in rents has occurred in Canberra, regional Victoria and Melbourne. Rental growth in most markets remains well above the rate of inflation.
The challenge for renters now is that, as inflation remains elevated and living costs continue to climb, their capacity to absorb further rent increases diminishes. Landlords will need to keep this in mind when reviewing rents.
Meanwhile, gross rental yields were unchanged over the year at 3.7 per cent, however they have been trending higher throughout this calendar year, a trend which is expected to continue.
Across the combined capital cities, gross rental yields have risen from 3.4 per cent a year ago to 3.6 per cent, and the regional markets have noticeably higher rental yields at 4.2 per cent, but they have fallen from 4.3 per cent a year ago.
In the capital cities, gross rental yields are higher over the year in Sydney, Melbourne and Canberra but lower elsewhere, whilst regional Victoria is the only regional market in which yields have increased over the past year.
Housing market data is reported with a lag, even where it is reported daily or monthly, so what is actually happening right now in a particular market can be quite different to what the data shows.
That is why the Herron Todd White Month in Review is so valuable; it provides up-to-the-minute insight from the nation’s largest network of valuation professionals, who are inspecting, valuing and talking with buyers, vendors and agents every day.
With spring approaching, I expect more stock to come to market. Rising listings alongside low sales volumes will slow conditions further, and values are expected to keep falling – potentially at a faster pace.
The housing market conditions and results will continue to be reported each month in the Herron Todd White Month in Review.
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