Rate Hikes Push Australia's Housing Market Toward Downturn

Sydney and Melbourne are five months into early decline, and Cotality warns the combined capitals index could tip negative — here's what to do.

The Reserve Bank's third consecutive rate hike — lifting the cash rate to 4.35 per cent — is beginning to show up in real data, and the picture across Australia's capital cities is sobering. [MPA Australia](https://www.mpamag.com/au/news/general/housing-market-nears-downturn-as-rate-pressure-builds/574377) reports that Cotality's latest Housing Chart Pack shows conditions softening after a strong growth cycle, with Sydney and Melbourne already in the early phases of decline and momentum slowing across mid-sized capitals.

For anyone wondering whether to buy, hold, or refinance right now, the data is worth understanding in full context.

What the Numbers Are Telling Us

Combined capital city home values rose just 0.2 per cent in April, according to Cotality's Home Value Index — barely a rounding error. Cotality research director Tim Lawless says the combined capitals index could shift into negative territory in coming months if the current trend continues.

"Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals," Lawless said. "Listings are picking up as demand softens, interest rates are rising while affordability and serviceability pressures are biting."

The broader context matters. The combined capitals Home Value Index has still increased 33.7 per cent over the past five years. Perth, Brisbane and Adelaide recorded gains of around 80 to 90 per cent over the same period — figures that show just how far the market ran before the current slowdown. For most existing owners, that means a substantial equity buffer remains in place.

Seventy-five basis points of rate hikes so far this year have done most of the heavy lifting in cooling activity. Lawless noted that "the market was already slowing well before the hiking cycle commenced, highlighting the downside impact of waning confidence from late last year alongside rising inflation and worsening levels of housing affordability."

On the supply side, 39,319 properties were added to the market nationally in the four weeks to early May — 4.7 per cent above the five-year average. Total advertised stock is now above average in Sydney, Melbourne and Canberra, giving buyers more negotiating room than they have had in years.

ABC News has also reported buyer hesitation on the ground. Auction clearance rates in Parramatta hit their lowest point since 2020, with one real estate agent describing buyers as "very hesitant right now" as rate rises make the maths harder. Australia's big four banks have all passed on the RBA's latest 0.25 percentage point increase in full.

How Serious Is the Risk — and What Should You Do?

Cotality's historical data puts the current slowdown in perspective. Australia's combined capital city markets have recorded 10 downturns of at least three months over the past 40 years, and most were relatively brief — all but three lasted less than 12 months. The steepest fall on record was the 2017–2019 correction, when values dropped 8.2 per cent over 19 months, following tighter credit conditions. The 2022–23 downturn saw values fall 8.1 per cent over just nine months as rates climbed rapidly from pandemic lows.

On mortgage stress, the data is more reassuring than headlines suggest. Arrears sat at around 1.45 per cent at the end of last year — below the 1.69 per cent peak recorded when rates were at similar levels in mid-2024. The Reserve Bank estimated that fewer than 1 per cent of households were in negative equity at the start of this year. Cotality attributes this partly to Australia's three-percentage-point mortgage serviceability buffer, meaning most borrowers were already stress-tested well above current repayment obligations.

The highest-risk cohort is recent buyers who purchased in the last 12 to 24 months with smaller deposits and less time to build equity or pay down principal. Some participants in the government's 5 per cent Deposit Scheme fall into this category and could face negative equity if values fall materially. That said, Lawless notes that "mortgage repayments are typically prioritised, with borrowers more likely to adjust spending elsewhere before missing a payment."

If you are an existing borrower, the single most useful action right now is checking your rate. With lenders competing actively for refinance business, the gap between what you are currently paying and what is available in the market can be several hundred dollars a month. Browse the [cheapest home loans currently available](/home-loans/cheapest), or run the numbers through our [refinance savings calculator](/calculators/refinance-savings) to see what switching could mean over your remaining loan term.

If you are a prospective buyer, rising supply and softer buyer sentiment may open genuine negotiating windows — but understanding what you can borrow at today's rates is critical before bidding at auction. Our [borrowing power calculator](/calculators/borrowing-power) lets you model current serviceability before you make any commitments.