Australian home prices fall 1.1% in September as fourth rate hike deepens market slump

Price drops across capital cities

Australian national home prices declined 1.1% in September from August, extending a six-month downturn that has wiped out 5.2% of property values since the March peak. Property data firm Cotality reported that values are now flat compared with the same period last year, after an August decline that was downwardly revised to 1.2%. The monthly contraction affected all large metropolitan centers, with Brisbane recording a 1.5% decline to a median value of $1.05m, a reduction of $59,000 since May. Sydney property values dropped 1.4% over the month, taking losses from the March peak to 8.6%, or approximately $112,000. In Melbourne, prices fell 0.7% in September and sit 7.2% below their November 2025 level. Smaller capital cities experienced similar pressure, as Adelaide and Perth both slid more than 1%.

Declining sales and higher borrowing costs

Transaction volumes fell 19% over the past three months compared with the prior year, as higher borrowing costs curtailed buyer purchasing power. On Tuesday, the Reserve Bank of Australia lifted the official cash rate by 25 basis points to a 15-year high of 4.6%, marking its fourth increase of the year. Comparison service Canstar calculated that the four increases reduced the borrowing capacity of a full-time worker earning an average annual wage of $108,650 by $47,400. Real estate listings have accumulated as properties remain on the market longer without finding buyers. Research director at Cotality Tim Lawless observed that prospective purchasers are constrained by diminished affordability.

Ironically, many prospective buyers don't have the confidence or financial capacity to buy at the moment.

Impact of tax reforms and banking exposures

The market downturn followed federal tax changes introduced in May, which eliminated longstanding tax incentives on existing homes for buy-to-let properties, including reduced capital gains levies and deductions for rental losses against income. Commonwealth Bank of Australia reported that mortgage applications dropped 15% in the three months following the policy change. Residential mortgages account for between half and two-thirds of loan books at Australian banks, compared with roughly a quarter at European and American institutions. To offset the slowing mortgage pipeline, lenders have shifted focus toward corporate lending, supported by projected business credit growth of 7% or more over the next two years.

Spring market conditions and economic outlook

Real estate activity during the spring selling season has failed to match previous seasonal volumes. Property Home Base buyer agent Joe Trucchio reported that buyer inquiries remain subdued across Melbourne, with purchasing interest concentrated primarily at the cheaper end of the market. Interest rate increases have remained the central topic of discussion among hesitant purchasers.

We're fully into the spring buying carnival, and we haven't seen it pick up the way that it had in previous years.

Economists broadly project an overall peak-to-trough fall of 10% for Australian residential property, with HSBC projecting a 13% drop if the central bank raises rates again. Concurrently, the government reported that its 5% deposit program assisted more than 102,000 first-time homebuyers over the past twelve months, averaging over 8,400 participants monthly since June. Reserve Bank Governor Michele Bullock indicated that policymakers considered holding rates steady at Tuesday's meeting before deciding to raise the cash rate.