Sydney, Melbourne Values Slide as Perth Surges Ahead

Cotality's May data shows a housing market split by city — Sydney down 0.9%, Perth up 91.4% over five years. Here's what it means for your mortgage.

Australia's Housing Market Is Running at Two Speeds

Cotality's national Home Value Index was flat in May at exactly 0.0% — but that headline number masks a housing market that has firmly split into two camps. Property Update, citing analysis by Cotality Research Director Tim Lawless published 1 June 2026, shows Sydney and Melbourne leading a clear decline while Perth and Darwin continue to record strong monthly growth.

In Sydney, dwelling values fell 0.9% in May and now sit 2.1% below the cyclical high reached in November last year. Melbourne dropped 0.8% and is 2.9% below its November peak. The ACT edged down 0.2%. On the other side of the ledger, Perth and Darwin each rose 1.5%, Brisbane and Hobart gained 0.9%, and Adelaide added 0.5%.

The five-year divergence is stark. Perth home values have risen 91.4% since May 2021. Melbourne, over the same period, is only 3.3% higher. The city you are in has become the single most important variable in any property decision you make this year.

What Falling Values Mean for Sydney and Melbourne Borrowers

Declining property values have direct, practical consequences for homeowners. As values fall, your loan-to-value ratio (LVR) rises — the equity buffer in your home shrinks. If you have been planning to refinance on the assumption you hold 20% or more equity, it is worth rechecking the numbers before approaching a lender. An LVR above 80% typically means a higher rate tier or a lenders mortgage insurance charge when switching. You can model your current position using our [refinance savings calculator](/calculators/refinance-savings).

For buyers, conditions have shifted meaningfully in your favour. Advertised stock in Sydney and Melbourne is above the historical average. The weighted average clearance rate across the combined capitals was close to 50% through the second half of May — a significant shift from the frenzied conditions of 2021–22. Nationally, estimated home sales over the past three months are tracking 2.2% lower than a year ago and 4.1% below the five-year average. In Sydney, sales volumes are down 17.0% year on year; Melbourne is down 14.2%. More choice and fewer competing buyers means genuine negotiating leverage has returned. Before you start inspecting, use our [borrowing power calculator](/calculators/borrowing-power) to establish your ceiling.

Rents Keep Rising While Values Ease

There is a counterintuitive dynamic in play: even as home values soften in the major cities, rents are accelerating. National rents rose 0.6% in May, pushing annual rent growth to 5.9% — the fastest pace since the 12 months to September 2024. The national rental vacancy rate dipped to 1.5% in May, matching the record lows seen in 2022–23.

The cost of renting has risen around $204 per week nationally over the past five years, according to Cotality. With renters now dedicating roughly a third of their pre-tax income to rental payments, there are likely limits to how much further rents can climb before household formation patterns shift — more group households and multigenerational living become the practical response. Gross rental yields for the combined capitals have risen to 3.45%, the highest since June last year, as rents grow faster than values.

For renters wondering whether buying might make more financial sense, it is worth [comparing current home loans](/home-loans/cheapest) to see how a mortgage on a comparable property stacks up against what you are currently paying in rent.

Headwinds: Rates, Tax Changes and Sentiment

The softness in the southern markets reflects a broader shift in conditions. The RBA raised the cash rate by 25 basis points in May to 4.35%. Headline inflation eased to 4.2% in the year to April, down from 4.6% in March, while the RBA's preferred trimmed mean measure edged higher to 3.4% — indicating that underlying price pressures have not fully resolved.

Consumer sentiment remains deeply pessimistic, according to Cotality's analysis. The Federal Budget has added a further headwind for the investment market. Negative gearing will be restricted to new builds from 1 July 2027, and the existing 50% capital gains tax discount will be replaced with an indexed cost base approach and a minimum tax rate on capital gains. These changes are expected to reduce investor demand materially from near-record highs.

Regional markets have shown greater resilience, rising 0.6% nationally in May. Regional Western Australia led with 1.9%, and all broad rest-of-state markets recorded a positive monthly trend.

What Borrowers Should Do Now

If you own in Sydney or Melbourne, now is a practical time to [review your refinance options](/home-loans/refinance). Many existing borrowers have not renegotiated since the rate-rise cycle began, and the gap between what they are currently paying and what competitive products offer may be wider than they expect.

If you are a buyer in a softening market, take your time. Clearance rates near 50%, above-average listings, and falling sales volumes give you room to negotiate that simply did not exist in recent years. Establish pre-approval first so your ceiling is clear, then use the market conditions to your advantage.

Cotality's overall assessment is that the most likely outcome is a gradual drift lower rather than a sharp correction, with conditions remaining uneven by city and price tier through the remainder of 2026. The key variables to watch: the path of inflation and RBA policy, the trend in consumer confidence, and whether listings continue to rise in Sydney and Melbourne.

[Source: Property Update — National values flatline in May as housing markets face stronger headwinds](https://propertyupdate.com.au/national-values-flatline-in-may-as-housing-markets-face-stronger-headwinds/)