Sydney and Melbourne house prices are continuing to fall as higher interest rates, weaker investor demand and changes to property taxation put further pressure on Australia’s housing market.
Data from property research firm Cotality showed home values in Sydney dropped 1.4 per cent in August, leaving them 7.1 per cent below their February peak. Melbourne recorded a monthly decline of 1.1 per cent.
The falls came as prices weakened across almost every Australian capital city. National home values dropped 0.9 per cent during the month, marking the fifth consecutive monthly decline.
Cotality research director Tim Lawless said a sharp reduction in demand, combined with above-average levels of advertised stock, was weighing particularly heavily on Sydney, Australia’s most expensive housing market.
The downturn has spread well beyond a small number of expensive suburbs. Cotality found that 93 per cent of capital-city suburbs recorded falling values during the winter, up from 45.8 per cent in autumn.
Higher borrowing costs have reduced the amount prospective buyers can afford to spend, while the federal government’s changes to negative gearing and capital gains tax have made property investment less attractive.
The Reserve Bank of Australia said in its latest economic assessment that Sydney and Melbourne had experienced the largest price declines. It attributed the easing market to actual interest-rate increases during the first half of 2026, a weaker economic outlook and announced tax changes affecting property investors.
Investor activity has also begun to retreat. Eleanor Creagh, senior economist at realestate.com.au, said investor searches on the property website had fallen since the federal budget, with lending data showing a corresponding decline in investor borrowing.
“Downward pressure on investor demand means less competition and can add to downward pressure on prices,” she said.
Separate figures from Domain showed Sydney house prices fell 3.3 per cent in the June quarter to a median of about 1.73 million Australian dollars, while Melbourne prices declined 3.1 per cent to roughly 1.04 million dollars.
Domain has forecast further falls in both cities over the financial year to June 2027, with Sydney house prices potentially dropping by up to 122,000 dollars and Melbourne prices by as much as 84,000 dollars.
Analysts said the next test for the market would come during Australia’s spring selling season, when an increase in new listings could create further downward pressure if buyer demand remains subdued.
