Sydney, Melbourne home prices decline as affordability bites

[SYDNEY] Home values in Australia’s two largest cities, Sydney and Melbourne, declined in March as rising borrowing costs at already-elevated prices hurt affordability while growth momentum eased elsewhere.

Sydney fell 0.1 per cent while Melbourne declined 0.2 per cent, coinciding with falling auction clearance rates and a pick-up in advertised supply, property consultancy Cotality said in a report. Perth was the outperformer, clocking 2.5 per cent growth while both Brisbane and Adelaide recorded rises of more than 1 per cent, the report showed. That left the combined capitals index up 0.6 per cent.

The national Home Value Index, which includes regional Australia, rose 0.7 per cent in March, taking dwelling values 2.1 per cent higher over the first quarter of the year – slower than the 2.8 per cent pace in the final three months of 2025.

“There are some early signs of an easing in purchasing demand,” the report said. “Given the likelihood of a further rise in cost-of-living pressures and interest rates, alongside a drop in confidence as conflict in the Middle East extends, it’s likely that purchasing demand will continue to reduce over the coming months.”

Sydney has one of the least affordable housing markets in the developed world, with median prices near A$1.3 million (S$1.15 million). It’s rare for prices in the Harbour city to fall – the market saw a brief period of declines between October 2024 and January 2025. Prior to that, it fell 12.4 per cent over the year to January 2023 as interest rates rose from all-time lows.

Bloomberg Intelligence expects Sydney’s three-year home price rally to end this year, with analysts led by Patrick Wong predicting a 1 per cent decline driven by the Reserve Bank’s latest interest-rate tightening cycle. 

“Residential properties in Sydney are likely to become more unaffordable with rising mortgage repayments due to recent interest-rate hikes,” Wong wrote in a report on Tuesday (Mar 31).

The RBA tightened monetary policy for a second straight meeting in March and is widely expected to deliver a third consecutive hike in May, taking the cash rate to 4.35 per cent from 4.1 per cent now as it seeks to rein in inflation. Financial traders expect at least one more rate rise after that.

RBA policymakers remain non-committal about the future path for rates as a surge in oil prices from the Middle East war fans inflation risks, the minutes of the RBA’s March meeting released on Tuesday showed. 

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Sydney home prices flatline while rest of Australia stays strong

The Cotality report showed rents rose again another 0.7 per cent in March, taking the quarterly change to 2.1 per cent – the most since May 2024.

The strength “is occurring at a time when rental affordability measures are already stretched to record levels,” Cotality said, noting that a median income household would be dedicating a third of its pretax income on rents at the median rate. “The reacceleration in market rents is bad news for inflation.” BLOOMBERG