The regions have shown greater resilience amid a national property market slump, with housing values rising 0.6 per cent across the combined regional areas in May.
Nationally, the property market is slowing, but the news was better for homeowners who choose to live beyond the city limits, Cotality's national Home Value Index for May reveals.
Collectively, the regional areas grew 8.8 per cent up until 31 May, 2026, with median values sitting at $941,864.
Combined rental yields in the regional areas grew 4.2 per cent amid the continually low vacancy rates.
The data, which tracks property prices at the same time that the federal budget was handed down, proves that homeowners and investors are wary about the impact of changes to negative gearing and capital gains tax announced.
While the regions showed resilience amid a loss of momentum, it wasn't great news for homeowners in Sydney and Melbourne, which is leading the downturn.
Dwelling values fell by 0.9 per cent and 0.8 per cent respectively in May to be 2.1 per cent and 2.9 per cent
below their cyclical highs in November last year.
Across the remaining capitals, values continued to rise, although growth is clearly losing momentum.
Nationally, the estimated number of home sales over the past three months was tracking 2.2 per cent lower than a year ago and 4.1 per cent below the five-year average.
Selling conditions have also softened as demand and supply levels rebalance.
This level of market diversity has been a defining feature of housing condition for the past five years, Cotality research director, Tim Lawless says.
"While the speed of change remains very different from city to city, the direction is becoming more consistent, with most markets losing momentum as demand-side headwinds intensify," he says.
The big issue, no matter where you live, remains affordability.
Dwelling values relative to income remain elevated across most capitals. At the same time, higher interest rates have reduced borrowing capacity and lifted repayment burdens, Cotality's data reveals.
With affordability and serviceability pressures near record highs, the buyer pool has narrowed, particularly at higher price points where borrowing limits are most binding.
Overall, the housing market looks to be moving into a more subdued phase. The key watch points from here are the path to inflation and interest rates, the trend in consumer confidence and whether listings continue to rise, according to the Cotality data.
Commenting on the Cotality data, Matt Bell, chief economist at Oliver Hume Property Group notes that land markets held steady in the March quarter but are easing through the June quarter.
A softening established market isn't going to help matters, while the deteriorating outlook for overall residential prices in the June quarter means 2026 is going to be a tough slog for pretty much every residential market segment across the country, Bell says.
"Increasing rates and global uncertainty were buffeted by Federal Budget impacts in May to see the national housing market come to a grinding halt. National dwelling price growth was 0 per cent in May. When it comes to trends across capitals, pretty much everything remains the same when it comes to dwelling prices, just lower," Bell says.
The only positive development for the residential market over May has been the softening outlook for interest rates.
"Only a few weeks ago the market had locked in at least one more rate hike in October and a second by December."
Softer inflation and a rising unemployment rate has removed at least one of those future hikes, he says.
"Markets now have less than one more rate hike priced in, and that has been pushed out to the final quarter of 2026. Many economists forecast a stable rate environment until the RBA moves to cuts in the second half of 2027."
