Market Cycles – September 2026: Housing Downturn Reaches 93% of Capital City Suburbs

What Happened This Month

Cotality’s Home Value Index fell 0.9% in August and 3.1% over the three months to the end of the month, taking the national median dwelling value to $912,885 [Cotality]. Values are still 2.7% higher than a year ago, but almost all of that annual gain now sits in the regions and the mid-sized capitals. Combined capital city values fell 1.1% in the month, while regional values fell a smaller 0.4% and remain 7.7% higher over the year.

The common thread is borrowing capacity. Three rate rises between February and May lifted the cash rate to 4.35%, and the Reserve Bank held it there in June and August while warning that further rises remain possible [RBA]. Sales volumes over the three months to August were 15.5% below the same period last year, listings were 24% higher, and the median home took 33 days to sell in the capitals, up from 26 a year earlier. Fewer buyers chasing more stock has shifted negotiating power away from vendors.

Sydney: Leading the Correction

Sydney dwelling values fell 1.4% in August and 4.7% over the quarter, the largest falls of any capital, leaving the city 7.1% below its February peak and 4.6% lower than a year ago. The median dwelling value is now $1,222,718, and the median house value $1,494,878. Houses are doing the heavy lifting on the way down, falling 1.8% in the month against a 0.4% fall for units.

Sydney’s more expensive suburbs have recorded some of the larger falls, consistent with top-end buyers being the most sensitive to borrowing capacity and to the May Budget changes to investor tax settings. The spring opener offered a small positive, with Sydney’s preliminary clearance rate reaching 57.7% across 523 auctions on 6 September, an 18-week high [Cotality], although that is still well below the 60% mark that has historically signalled stable prices.

Melbourne: Back Below Its 2022 Peak

Melbourne values fell 1.1% in August and 3.9% over the quarter, and are down 4.7% over the year to a median of $786,718. The city remains 6.8% below its March 2022 record high, having never fully recovered from the last rate hiking cycle. Houses fell 1.4% in the month while units eased 0.5%.

Melbourne’s relatively flat run over the past five years means it has less of a buffer than other capitals, but it also starts this downturn from a lower base relative to incomes. Its auction market opened spring at 58.2% on 662 auctions, a four-week high.

Brisbane: Momentum Has Turned

Brisbane values fell 1.0% in August and 2.7% over the quarter, and are now 2.7% below their May peak. The annual figure still looks strong at 10.8%, with a median dwelling value of $1,080,142, but the direction has clearly changed. July’s result was revised down to a 1.2% fall on later data.

Auction results have been especially weak. Brisbane’s preliminary clearance rate on the first weekend of spring was just 24.8%, its second lowest result this year, and listings are rising faster than in most other capitals. For buyers in south-east Queensland, that combination has produced more room to negotiate than at any time since the pandemic boom.

Perth: The Boom Pauses

Perth values fell 0.8% in August and 3.2% over the quarter, leaving the city 3.2% below its April peak with a median of $999,987. The annual gain of 15.6% is still the second strongest of any capital, but July was revised from a small rise to a 1.3% fall, showing how quickly conditions have turned. Units fell 1.0% in August, slightly more than houses.

Perth’s rental market remains tight, with SQM Research’s vacancy rate at 0.6% in July and annual rent growth of 8.1%, which continues to support investor yields relative to the eastern capitals.

Adelaide: Slowing From a High Base

Adelaide values fell 0.8% in August and 1.6% over the quarter, but are still 8.6% higher over the year at a median of $937,207. The city is 1.6% below its May peak. Its first spring auction weekend recorded a preliminary clearance rate of 34.5%, the lowest since April 2020, which suggests buyers are becoming more price sensitive after a long run of growth.

Smaller Markets: Hobart, Darwin and Canberra

Darwin was the only capital to rise in August, up 0.6% to a median of $647,259, and is now 14.6% higher over the year and sitting at a record high. Its gross rental yield of 6.3% remains the highest of any capital. Hobart was close to flat, down 0.2% for both the month and the quarter, with values 8.1% higher over the year at a median of $752,397.

Canberra fell 1.1% in August and 2.8% over the quarter, leaving values 0.4% lower than a year ago at a median of $864,998. The national capital has the loosest rental market in the country, which has kept investor demand subdued.

Rental Market Snapshot

Rents are still rising even as values fall. SQM Research’s national vacancy rate held at 1.3% in July, with five capitals below 1% and Darwin the tightest at 0.3% [SQM Research]. Asking rents across the capitals averaged $796.51 a week, and Cotality measured national rent growth of 5.7% over the year to August.

The combination of falling values and rising rents has lifted the national gross rental yield to 3.79%. That improves the numbers for investors at the margin, but most properties remain cash flow negative at current interest rates, and Sydney and Melbourne have shown signs of rental conditions loosening while the smaller capitals remain very tight.

Lending and Finance Trends

New home loan commitments fell 5.4% in the June quarter to 134,225, with the pullback spread across every borrower type [ABS]. Investor lending led the decline, down 8.6% in the number of loans and 10.2% in value to $37.1 billion, the steepest quarterly fall since September 2022, as rate rises and the Budget changes to negative gearing and capital gains tax hit investor demand.

Owner-occupier commitments fell 3.3% to 81,626 and first home buyer loans fell 2.9% to 29,319, although the value of first home buyer lending edged up 0.2% to $18.4 billion as average loan sizes grew. Investors weighing an investment loan now face the widest variation in lender policy for some time, particularly in how negative gearing is treated in serviceability, and the tax side of that decision is best assessed with an accountant.

What to Watch Next Month

The Reserve Bank meets on 28 and 29 September, with the August labour force figures due in the middle of the month and the August monthly inflation figure following on 30 September. The July monthly CPI showed headline inflation easing to 3.5% while the trimmed mean held at 3.6% [ABS], and all four major banks now expect at least one more rise this year.

Spring auction volumes are the market’s next real test. Cotality expects volumes to build through September, and clearance rates holding above 55% would suggest buyers are absorbing the extra stock. A run of results below 50% in Brisbane, Adelaide and Canberra would point to further price falls through October.

Downturns of this kind tend to reward preparation. Buyers with finance in place are facing more stock, longer selling times and larger vendor discounts than at any time in recent years, while owners with fixed rates rolling off in the next few months may want to review their options before a further rise lands. Property has historically moved in cycles, and the structure and timing of a purchase usually matter more over the long run than the month it happens in.