Australia’s housing downturn accelerated in July, with national median dwelling values falling 0.7 per cent — the steepest single-month decline since December 2022, according to property data firm Cotality. The downturn, which had been confined to Sydney and Melbourne since the start of the year, has now spread to Brisbane and Adelaide, both of which recorded their second consecutive monthly fall in property prices. Brisbane’s median price dropped about $8,000 since May, ending a historic 40-month run of consecutive gains, while Adelaide and Perth median prices each fell about $4,000 below their record highs set in May. Perth’s monthly movement in July was mixed: Cotality reported a modest 0.1 per cent increase after a revised 0.5 per cent contraction in June, but prices remain below the May peak.

Analysts point to three factors behind the rapid deterioration. The Reserve Bank of Australia’s three interest-rate hikes since February have reduced borrowing capacity, while the May federal budget’s changes to negative gearing and capital gains tax have further dampened investor demand. The outbreak of the US-led war on Iran in late February added geopolitical uncertainty. Cotality’s head of research, Gerard Burg, said the shift was most evident in Brisbane, where total stock available for sale rose from 25 per cent below the five-year average in February to 6 per cent above that level in July, giving buyers more choice. At the same time, potential vendors are pulling listings from the market, which could limit how far prices fall.

The weakening market has surprised even the Reserve Bank. Governor Michele Bullock said on Wednesday she was “surprised” by the slump in prices and demand since May, attributing it to falling buyer confidence rather than restrictive policy alone. Mortgage demand is falling sharply: NAB reported a 15 per cent decline in home loan applications quarter-on-quarter, with Westpac, Equifax and Loan Market independently reporting similar trends. Banks have responded by quietly cutting variable rates for new borrowers — Commonwealth Bank cut rates by 5–8 basis points in June, while Westpac cut up to 14 basis points — as they compete for a shrinking pool of customers. Despite the falls, fewer than 1 per cent of borrowers are in negative equity, according to the Reserve Bank.

The next milestone to watch is the Reserve Bank board meeting on 11 August, where no rate rise is expected. Auction clearance rates have edged up from a June low of 47.4 per cent to a preliminary 53.6 per cent in the latest weekend, suggesting some buyers are beginning to adjust. But economists caution that the direction of prices will depend on interest rates and whether the supply pullback by sellers is enough to stabilise values. Cotality noted that the top 20 per cent of the market recorded the steepest falls — down 3.2 per cent in the past three months — while values at the bottom end, dominated by first-home buyers, rose by 0.3 per cent as some first-home buyers showed renewed confidence.