Australia's Property Market Enters Downturn as Investor Confidence Wavers

Australia's residential property market has officially entered a downturn, with new data from Domain revealing falling prices across multiple capital cities as investor confidence crumbles and first home buyers adopt a wait-and-see approach.

Sydney, Melbourne, and Canberra are bearing the brunt of the decline and driving the national trend, but the softness is spreading. While other capital cities are still recording modest growth, the pace of that growth has slowed markedly compared to earlier periods — with one notable exception.

"Adelaide was the only city where house price growth actually accelerated," said Domain's chief of research and economics Nicola Powell. "What we're seeing elsewhere is a broadening out of the downturn."

The unit sector has been particularly hard hit. Apartment prices fell across every capital city in the country, bar Darwin — a result that surprised even Domain's analysts. Powell said the breadth of unit price weakness across the board is a clear signal that investors have turned cautious in a meaningful way.

"Investors are shying away from the housing market, and it may be having a ripple effect on first home buyers as well," she said. "Nobody wants to purchase when property prices are falling. There's this fear of buying on a Friday and finding out by Monday that your home is worth less."

First home buyers using the federal government's five per cent deposit scheme face additional anxiety around losing equity early in their ownership journey. Powell acknowledged the nervousness is real, but noted some buyers may be deliberately holding off in the hope that prices fall further and their purchasing power improves.

Domain is forecasting price falls of up to eight per cent in Melbourne and up to seven per cent in Sydney for the current financial year — though Powell suggested the outcome is likely to land towards the lower end of that range based on recent quarterly data. She warned that additional interest rate rises could push declines beyond those projections.

Despite the gloomy outlook, Powell pushed back against fears of a property market crash, which economists typically define as a fall of twenty per cent or more. She pointed to two structural factors that tend to put a floor under prices even in a genuine downturn.

"Sellers start to pull back — they won't list until conditions improve," she explained. "And high construction costs keep the price of new homes elevated, which filters demand back into the established market. Both of those things together support a price floor."

For the market to see truly significant price falls, Powell said, housing supply would need to surge rapidly — meaning the government would have to hit its ambitious housing accord targets — while further rate rises would also be required. Her view is that the cash rate has likely peaked, but that the rate reductions needed to meaningfully shift buyer sentiment remain some time off.

"We are not entering a market in free fall," Powell said. "People pause their decisions until conditions improve — that's a behavioral response, and it's a strong one. It creates a floor, and it always has."