Key Market Insights
The national Home Value Index fell 0.4% in June — the sharpest monthly decline since December 2022 — dragging the quarterly result to −0.7% and easing annual growth to 7.3%. Combined capitals dropped 1.3% over the quarter, with Sydney (−3.2%) and Melbourne (−2.6%) leading a broad-based capital city downturn, while combined regionals held on to a 1.1% quarterly gain led by Regional WA (+3.7%).
The June update revises the national peak to March 2026, with headwinds mounting from the seventy-five basis points of rate hikes delivered earlier in the cycle, deeply pessimistic consumer sentiment, and Federal Budget proposals to reshape negative gearing and capital gains tax. Perth, Brisbane, Adelaide and Darwin remain at record highs on constrained stock, but the pace of gains has stepped down materially and the outlook has shifted toward a gradual drift lower rather than a sharp correction.
Regional Market Insights
Regional WA remains the strongest broad region with +22.0% annual growth and a quarterly gain of +3.7%, underpinned by mining sector demand, extreme inventory shortages, and sustained interstate migration into the state's outback and Bunbury markets.
Regional Queensland continues to outperform at +13.8% annually and +1.5% over the quarter, with the Darling Downs, Central Queensland, and Cairns leading — Darling Downs (West) at +24.0% is the strongest regional SA3 nationally.
Regional Tasmania firmed further, delivering +2.8% over the quarter and +13.0% annually, with mainland buyer migration supporting Central Highlands (+15.9%), Launceston (+15.3%) and Meander Valley (+14.7%).
Regional NSW and Victoria have started to soften, both recording their first sub-peak reading in months (−0.2% and −0.1% respectively) as capital city weakness begins to spill over into commuter belts.
Major Market Drivers
Growth Drivers
Mid-Sized Capitals Still at Record Highs: Perth (+23.9% annual), Brisbane (+17.4%), Adelaide (+11.6%) and Darwin (+19.8%) remain at record highs, though the pace of growth has stepped down materially from the March quarter (when Brisbane averaged +1.9%/mth and Perth +2.5%/mth).
Regional Outperformance Persists: Combined regionals +1.1% over the quarter vs −1.3% for combined capitals — the widest split in over a year — supported by lower price points and rising internal migration into resource-belt and lifestyle markets.
Tight Labour Market: Employment remains high and the jobs market is tight, underpinning household income security, mortgage serviceability, and limiting the risk of forced selling even as sentiment weakens.
Constrained New Supply: New housing supply remains structurally short, and even where approvals and commencements have improved (WA, SA, Qld), it will take time to flow through to completions — providing a floor under the correction.
Improving Buyer Conditions: More advertised stock, longer selling times, and softer auction results are handing negotiating power back to buyers with secure employment, strong deposits, and sufficient borrowing capacity.
Market Challenges
Broad Capital City Downturn: National values fell 0.4% in June — the sharpest monthly decline since December 2022 — with Sydney (−3.2%) and Melbourne (−2.6%) leading a quarterly retreat that pulled all four capitals into negative territory for the month or quarter.
Weak Transaction Activity: The combined capitals auction clearance rate has held below 50% since late May and dropped into the low 40% range from late June; capital city sales over the three months to June are estimated to be 16.2% below year-ago levels and 14.5% below the five-year average.
Rising Advertised Stock: Advertised listings across the capitals are almost 11% higher than a year ago, with Sydney, Melbourne and ACT already seeing above-average stock levels — an accumulation driven by weaker demand rather than a pick-up in new listings.
Federal Budget Tax Changes: Proposed changes to negative gearing and capital gains tax settings are expected to trigger a sharp pullback in investor demand for established dwellings, at a time when investors were a major source of demand across many markets.
Deeply Pessimistic Sentiment: The Westpac–Melbourne Institute Consumer Sentiment Index fell 2.9% in June, with households reporting renewed pressure on family finances alongside a worsening in house price expectations — typically translating into weaker turnover.
Elevated Rates, Watch on RBA: The RBA held at 4.35% in June after 75bps of hikes earlier in the cycle. With underlying inflation still above target and a tight labour market, the case for another hike hasn't disappeared — a key upside risk to the outlook.
Rental Market Trends
Rental Growth Holds Firm: The national Rental Value Index rose 0.5% (seasonally adjusted) in June, with annual growth held at 5.9% over the financial year — adding roughly $40/week to the median rent.
Vacancy Rates Still Extremely Low: The national rental vacancy rate rose modestly to 1.6% in June from 1.5% in May, but remains well below the decade average of 2.5% and the pre-COVID five-year average of 3.3%.
Darwin and Regional Tasmania Lead: Broad-region annual rental growth ranged from 10.1% in Darwin and Regional Tasmania to 3.2% in the ACT and Regional NT — the widest rental growth dispersion in years.
Yields Continue to Edge Higher: Combined capitals gross yield sits at 3.5%, up from a recent cyclical low of 3.34% in December and a record low of 2.92% in January 2022 — but still well short of covering holding costs for a leveraged investor at ~6.4% variable mortgage rates.
Five-Year Rent Rises Compound: Capital city rents have risen 41.7% (or $217/week) over the past five years; Sydney remains the most expensive with medians of $883/week for houses and $783/week for units.
Cash-Flow Positive Suburbs Scarce: Cotality research from May estimates only 0.8% of suburbs nationally offer cash-flow positive investment opportunities, assuming a 20% deposit and average mortgage rates — highlighting how much yields would need to rise to shift investor dynamics.
Market Outlook
The Base Case: A Gradual Drift Lower, Not a Sharp Correction. The most likely path from here is a further loss of momentum through the second half of 2026 rather than a sharp national correction. Tight labour markets, low new supply and population growth should help limit the downside, but the balance of risks has clearly shifted toward weaker conditions. Investor-heavy markets, higher-value segments, and areas where listings have risen above average — Sydney, Melbourne, and the ACT — are the most exposed.
Two-Speed Dynamic Persists, but Narrows: Perth, Brisbane, Adelaide and Darwin will likely hold their outperformance through H2 2026, supported by low advertised stock and firmer buyer demand. However, the sharp step-down in monthly growth rates — Brisbane from +1.9%/mth in Q1 to +0.3% in June, Perth from +2.5% to +0.7% — signals these markets are also cooling and unlikely to sustain double-digit annualised gains through 2027.
Regionals Better Positioned Than Capitals: Regional markets — particularly Regional WA (+22.0% annual), Regional Queensland (+13.8%), and Regional Tasmania (+13.0%) — are expected to continue outperforming, driven by lower price points, sustained migration flows, and tighter stock. But early softness in Regional NSW and Regional Vic suggests capital-city weakness is starting to spill into the commuter belts.
Key Watch Points: (1) whether core inflation continues to rise, forcing the RBA to tighten policy again; (2) the speed and scale of investor pullback in response to proposed Federal Budget changes to negative gearing and CGT; (3) whether the lift in advertised stock becomes more entrenched through H2 2026; and (4) auction clearance rates — currently in the low 40s — which historically correlate with further monthly value declines when held below 50%.