Listings are rising while transactions fall across the country
Nationally, prices were flat over May. That looked, at first glance, like a pause. But the detail underneath was harder to dismiss. Prices still rose in Brisbane, Perth, Adelaide, Hobart and Darwin, yet the rate of growth slowed. At the same time, the number of homes listed for sale picked up in most cities while the number of sales slipped. Sellers are arriving faster than buyers. Markets do not stay balanced long when that starts happening.
The strain is already visible at auction. Just Cotality’s preliminary data showed 54.5 per cent of homes sold after being listed for auction in the final week of May. The finalised rate is typically lower still, leaving clearance rates tracking towards their weakest level since the 2020 lockdowns. The market has spent five of the last seven weeks below the 60 per cent mark. In March 2021, during the peak of the boom, clearance rates were north of 80 per cent. The shift matters because auctions compress sentiment into a single weekend. When buyers retreat there first, the slowdown rarely stays contained.
Even the cities still posting gains are beginning to show stress fractures. Perth home values soared 27 per cent in the last 12 months, yet the city recorded the lowest proportion of successful auctions among the capitals, with only 39 per cent resulting in a sale. Brisbane and Adelaide continue to rise, but more slowly. Sydney’s preliminary clearance rate recovered to 56.9 per cent from 49.2 per cent the previous week, though those earlier lows resembled conditions “during the early stages of the pandemic”. Melbourne managed just over 61 per cent of homes sold from 906 auctions, and even there the latest preliminary clearance rate slipped from the week before. The geography of the boom is no longer the geography of confidence.
Borrowers who entered late in the cycle are carrying the greatest risk
Cotality’s Tim Lawless has already moved past the language of moderation. He said the May fall in capital city prices could be the start of a significant year-long decline, including in the smaller cities that enjoyed the biggest booms. Economists now predict a slight fall in house prices in 2026 under pressure from interest rates, tax reforms and weakening confidence. Morgan Stanley analysts said values could slide 10 per cent. Lawless did not dismiss that forecast. He called it reasonable because national prices had already risen about 35 per cent in five years. The market’s apparent resilience rests on gains accumulated during the cheapest borrowing conditions in a generation.
That matters because the cost of money has not finished moving. Markets are betting on another rate rise this year while the Reserve Bank expects inflation to hit 4.8 per cent by June. The Reserve Bank is not expected to cut rates until late 2027 at the earliest. Clare O’Neil insisted the government’s tax changes were not the main driver of softer prices. Interest rates were. Yet the government’s proposal to wind back negative gearing has already added uncertainty to the housing market, particularly for investors who treated rising prices as protection against rising repayments.
The borrowers most exposed are not difficult to identify. Many borrowers who took out or refinanced loans during the pandemic had their borrowing capacity assessed below their current interest rate. First-home buyers tend to borrow at high loan-to-value ratios because saving for deposits is difficult, and recent buyers have had less time to build equity or savings buffers. The Reserve Bank’s own arrears analysis found arrears rates among highly leveraged borrowers are the highest and have increased the fastest. The explanation was blunt: smaller buffers make borrowers less resilient to changes in mortgage payments or household budgets.
High rates no longer look temporary enough to preserve the old assumptions
That is the structural contradiction now sitting underneath the market. Australia’s housing system has spent years teaching borrowers that prices “never really crash”. Historically, prices have dipped but not collapsed. Prices even rose during the recession of the 1990s. The assumption survived because lending conditions repeatedly loosened before forced selling spread. But Australian property prices are primarily driven by lending policy and interest rates, and this cycle is moving in the opposite direction. Inflation remains elevated. Rates are expected to stay high. Listings are rising while transactions fall. The buyers who entered the market latest are also the least protected from a prolonged squeeze.
The most uncomfortable fact is not that prices may fall. It is that a market built on the expectation of permanent refinancing flexibility is now confronting a period in which refinancing no longer restores solvency. Highly leveraged borrowers are already leading the rise in arrears, while rate cuts are not expected until late 2027. Australia’s housing market does not need a crash to force a reckoning; it only needs high rates to outlast the buffers of the people who bought believing they never would.
