First home buyers are starting to step back and investor demand is slumping in all areas except new property, as Australia’s housing market enters a downturn.
Research shows the market is transforming, nearly two months on from a third consecutive interest rate rise and sweeping tax reforms.
Here’s what the data is telling us.
Buyers getting cold feet
First home buyers are getting cold feet in the face of rising interest rates, ending a boom in demand backed by the government’s 5% deposit scheme.
They had accounted for more than 10,000 new loans a month from October, when the scheme expanded, until March, the Australian Bureau of Statistics has reported.
Credit agency Equifax reported home loan applications in May were 10.9% lower than May 2025 – while first-timer applications were down 13.4%.
Loan Market saw first home loan applications fall 20% in June compared to the same month in 2025.
Another way of tracking entry-level activity is by comparing price growth in homes eligible for the popular 5% deposit scheme with those that aren’t.
Homes are eligible if they are priced below $1.5m in NSW cities, $1m for south-east Queensland, $950,000 for Melbourne and Geelong, $850,000 for Perth, $900,000 for Adelaide and $700,000 for Hobart, with varying levels in the regions.
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Data from the property insights platform Cotality, pulled exclusively for Guardian Australia, shows property prices outside the scheme’s price caps began falling in April.
Properties below the caps rose faster in price, for longer, but began to fall in June.
Chart showing slower decline of first home buyer property prices
Lauren Jones, a Brisbane buyers’ agent, said she had seen only some first home buyers out and about, despite the quieter market working in their favour.
“This is what first-time buyers have been waiting for … and they’re just not taking the opportunity,” Jones said.
The Reserve Bank’s interest rate rises have pushed the average new loan rate above 6% annually, likely forcing some first home buyers to give up.
Jones said buyers had also been spooked by falling prices.
“They freak out when the market’s freaking out,” she said.
“First time buyers are out there putting in aggressive offers when the market’s hot, but the moment the market cools down, they back off.”
Expensive property demand collapses
While more affordable homes are starting to cool, Australia’s most expensive homes are recording deeper declines.
Higher-end home prices are slumping in Sydney, Melbourne and Canberra. Sydney’s top quartile – the top 25% of the market – has seen a median price fall of about $90,000 in the last three months.
The top quartiles are made up of homes worth about $1.8m and over in Sydney, $1.1m in Melbourne, $1.4m in Brisbane, $1.2m in Adelaide and $1.3m in Perth.
In Hobart, where most home prices are still rising, the top quartile of the market has seen prices go backwards in the three months to June. Lower demand has translated to slower price growth for expensive properties in Brisbane, Adelaide and Perth.
Chart showing decline in prices of expensive homes
Jones said Brisbane buyers had grown pickier about top-priced properties, looking for fully renovated homes and ignoring or getting big discounts on houses that need work.
“The unrenovated stuff is just sitting there and will be dropping in price quite a bit.”
But buyers could not afford to be so picky over more affordable homes, she said.
“That’s probably happening more at the top end than it is at the bottom end [where] they’ll still just take what they can get.”
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Investors cutting back
In mid May, the federal budget cut off access to negative gearing for investors buying existing homes. Banks responded by slashing investors’ borrowing capacity by about 20%, National Australia Bank reported.
Investor lending was rising at 10.3% annually in May, its fastest rate in a decade, Reserve Bank data shows. Regulator data shows Commonwealth Bank, ANZ, Macquarie and Westpac lent the most.
Investor loans fell by a fifth from the budget to mid-June while owner-occupier demand held steady, Westpac said.
Before the budget, investors had grown to account for about 40% of new home loans at major banks. Westpac’s chief executive for consumer, Carolyn McCann, said in June investors had fallen towards the historical average of about 33% of the bank’s lending.
“We’re expecting people are sitting on their hands a bit while they understand the rules,” McCann said.
Chart showing number of home loans taken out by investors
Investors buying new
Investors remain interested in buying new homes thanks to the budget giving those tax advantages over existing property.
Labor’s reforms allow investors buying or building new dwellings to continue to negatively gear them and, when they sell, choose between the new or old capital gains tax discounts.
Loan Market data indicates new homes are surviving the slump in investor spending, with the brokerage receiving 31% more applications from such investors this June from last June.
Chart showing number of investors wanting new homes
New builds rose even further as a proportion, from 4.5% of Loan Market’s 2025 total to 7% of its 2026 total. It’s small but significant, since national ABS data shows new builds accounted just 4% of all investor loans since the start of 2025.
Nick Marino, head of sales at Swooper, a land developer in south-west Sydney, said the downturn was hitting the new-build market, with inquiries down and some developers offering $20,000 discounts.
But those in the market for a new home on the urban fringe have been keen to buy, Marino said. Investors had held steady, accounting for 20% of Swoopland’s business.
“Our transactions are very, very healthy,” Marino said. “We are starting to see more investors coming to the market, but it’s a tricky market.”
Home sales slumping
The most obvious sign the market is in turmoil is the collapse in auction sales, leaving more homes on the market for longer.
Since late May,
fewer than half of homes listed for auction each week have successfully sold. The rate is even lower in Sydney. Graph showing decline of houses listed for auction that sold each week
Fearing failure, sellers are signing contracts before auction day, with about 40% of listed homes being sold before auction. Those who can’t pre-sell are cancelling before the day, with close to 20% of scheduled auctions withdrawn each week.
The total number of home sales in capital cities in the three months to June was 16.2% down on the same period last year, Cotality’s research director, Tim Lawless, said.
That has led to more homes sitting on the market for longer, rising from 28 to 30 days in the year to May. New listings are falling but the backlog means more homes are on the market, with advertised supply 11% higher over the year to June.
“Buyers now have more stock to choose from and less urgency in their decision-making,” Lawless said.
<small>Source: The Guardian</small>
