Australia’s housing market lost further momentum in May, with home values falling in its two largest cities as higher borrowing costs and stretched affordability cooled demand. Sydney values dropped 0.9% over the month and Melbourne 0.8%, leading a national slowdown, according to the Home Value Index published by the property analytics firm Cotality, formerly known as CoreLogic.
Both cities have now slipped below the peaks they reached late in 2025. Sydney values are down about 2.1% from their cyclical high and Melbourne about 2.9%, leaving the two markets several months into the early phase of a downturn even as growth merely slows in some mid-sized capitals.
The pullback has been accompanied by a sharp drop in transactions, handing buyers more leverage than they have enjoyed in some time. Sales volumes fell roughly 17% in Sydney and 14.2% in Melbourne, a sign that many would-be purchasers are stepping back as the cost of finance bites.
Cotality attributed the softening to a combination of constrained borrowing capacity, elevated interest rates and weaker consumer confidence, the same forces that have cooled housing in other advanced economies. The firm noted that the combined capital-city market has recorded around ten downturns lasting at least three months over the past four decades.
The cooling marks a turn from the strong gains of 2025 and feeds into a wider debate about affordability that has dominated Australian politics, with house prices a persistent source of frustration for younger voters locked out of ownership.
For the Reserve Bank and the federal government, a gentle easing in prices may be welcome after years of rapid appreciation, but a disorderly slide would carry risks of its own in an economy where household wealth is heavily concentrated in property.