House prices in Sydney and Melbourne are falling as interest rate rises and economic uncertainty caused by conflict in the Middle East saw buyers leave the market during the last quarter.
New Cotality data shows growth has slowed across the country in the last three months. The slowdown that began in December has continued, due largely to the Reserve Bank interest rate hikes in February and March putting median homes out of reach.
The Cotality data shows Australia’s most expensive real estate markets have entered a downturn. In Melbourne, properties priced at the lower end of the market saw values pick up 0.6% in the first three months of 2026. But the top end of the market fell 1.9%.
The city’s median home price fell $5,000 to $828,249 over the period, with its eastern suburbs recording the biggest drops.
Sydney’s median home price, meanwhile, fell $4,000 over the period to $1,295,387. Its bottom-priced quarter of houses saw values pick up 2.5%, with demand strong in the city’s west and south-west, but the top-priced quarter saw values fall 2.4%.
The outbreak of war in Iran and a second interest rate rise had immediate effect in March, according to Charles Touma, a Redfern-based realtor with Ray White.
“February was great, I sold some really good properties at really good prices. Then March fell off a cliff,” Touma said.
“I haven’t seen two months back-to-back be so vastly different.”
Consumer confidence hit new record lows in each of the final two full weeks of March, according to ANZ and Roy Morgan surveys.
The last full week of March saw 21 auctions in the Paddington to Waterloo area of inner Sydney, Touma said. Just four of those houses sold, with the rest passed in or withdrawn.
“It’s not terrible, it’s just a transition,” he said.
“You’ve got vendors on the market now that may not sell … but the new vendors that will come on to the market in May and June will go in with eyes wide open.”
Buyer activity has eased nationally, with Cotality estimating fewer homes were sold in the first three months of 2026 than the same period in 2025.
Supply has been unusually strong on the east coast, with the final full week of March seeing 4,062 auctions around the country, the highest since December 2021. Preliminary Cotality data shows only 61% of those were sold at auction, with the rest withdrawn or passed in – the lowest preliminary rate since December 2022.
“Falling auction clearance rates and a pickup in advertised supply [are] providing buyers with more choice and less urgency at the negotiation table,” Cotality’s research director, Tim Lawless, said.
Perth saw the strongest growth, with home prices rising 7.3% or $69,000 in the quarter, to $1,017,698.
“Clearly, this pace of growth is unsustainable, but [it] continues to be supported by low supply,” Lawless said.
New housing loans had 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.
That pace of borrowing is set to slow, with markets predicting another two more rate rises later in the year. The RBA could raise rates as soon as 5 May, when the board next meets.
