It took a war in the Middle East and another interest rate rise to push real estate prices to a tipping point, but it looks like house price gains in our two major capitals have run out of puff. Brace for a possible fall in March.
With another week yet to run before the end of the month, the signals are already blaring, and crucial among them is last weekend’s soft capital city auction clearance rates, which were the lowest so far this year.
This is a clear indicator of buyers’ increasing unwillingness to transact at sellers’ asking prices, and homes being passed in.
In Sydney, new listings are running 4 per cent ahead of where they were a year ago, but in Melbourne, they are up 10 per cent.
Dinner party discussions now focus on how much sellers are willing to drop their reserve price to get a sale. Anecdotally, buyers in the Sydney and Melbourne markets are recovering a bit of the bargaining power – a position not seen since 2022, when interest rates rose in response to the post-COVID inflation spurt.
It wasn’t just Sydney and Melbourne in which buyers baulked. Every capital city recorded a decline in the preliminary clearance rate relative to the week before, although some smaller capital cities are still experiencing price gains.
There are two factors influencing this outcome. First, there has been a burst of listing activity by sellers. There was a 2.4 per cent increase in the number of properties nationally taken to auction last week compared with the previous week – and last week was the second-biggest week this year.
And property data expert Cotality is expecting an even bigger auction program this weekend.
The rush to sell points to an urgency from sellers desperate to capture buyers before oil price-driven inflation messes with buyers’ confidence and their ability to service their mortgage.
“We can see this in our listings data, where the flow of new listings has been holding above the five-year average,” says Cotality’s Gerard Burg. “This pick-up in new listings could be a sign that prospective vendors are looking to beat a further deterioration in selling conditions ahead of higher interest rates.”
And with inflation comes the heightened prospect of more interest rate pain. Many of the major economists are predicting a rate rise in May, and the money market is betting similarly.
While inflation data for February, released on Wednesday, was slightly lower than expected, economists branded the result meaningless, given it didn’t capture the Iran war-driven sharp rise in fuel prices and subsequent gains in supply in transport and chain costs, which will feed into consumer prices.
And even without war-induced price rises, the rate of inflation sits well above the Reserve Bank’s target.
If our central bank moves rates up again in May, it will wipe out last year’s rate cuts.
And it is increasingly plausible and predicted by some economists that there will be yet another rise this year on top of the one delivered in May.
Two more rate increases will put some pressure on affordability for would-be buyers, while investor enthusiasm for the market is being curtailed by fears that the May federal budget will contain changes to capital gains tax and negative gearing.
None of this activity is pointing to a crash in property prices – rather an easing off the peak.
The sustained high rates of immigration and strong employment will put a floor under any meaningful fall in the value of housing.
While the government has made a little headway in increasing the supply of new housing stock, it still lags what is needed. And the cost of building new homes surged during February 2026, to a 16-month high, and that was before the impact of the oil price rise.
For property buyers, it looks like now is a good time to negotiate a little harder.
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