For the first time in years, buyers hold the power but will they use it?
Australia’s housing market has cooled rapidly this year as buyers grapple with the prospect of higher rates for longer, global instability and a major shift in tax settings.
Auction clearance rates slumped to their lowest levels since 2020 this winter, and houses are sitting on the market longer – or being withdrawn from sale altogether – as sellers, too, struggle to adjust price expectations. In the last week of June, the national auction clearance rate dipped to 45 per cent, well below the rate at the same time last year, which was buoyant, around 68 per cent, according to Cotality.
While the slowdown has handed buyers more negotiating power than they’ve had in years, many are nervous about jumping in, fearing a significant market correction is on the horizon. Ironically, that could hand even more negotiating power to those still on the hunt.
Slowdown or correction?
Nationally, home prices fell 0.4 per cent in June, the third consecutive monthly drop, according to PropTrack’s Home Price Index. Prior to this run, the only other price dip in the past four years was in December/January of 2024/25, but the market bounced back quickly when the Reserve Bank of Australia began cutting interest rates from the long term high of 4.35 per cent.
But this time around, there are no rate cuts on the horizon and multiple headwinds, which commentators believe will extend this buyers’ market through the remainder of 2026. The three main factors putting downward pressure on prices are:
1. Global instability
The long-term future of the Strait of Hormuz is still to be ironed out, but in the meantime, it is causing price inflation in the construction sector which is flowing through to house prices and supply. A Commonwealth Bank report in May 2026 noted the price of PVC piping had leapt by as much as 40 per cent and surcharges of up to 25 per cent were being charged on concrete deliveries due to the US/Iran conflict. It’s driving up the price of both new builds and renovations.
2. Tax changes
In late June, the Federal Government passed sweeping changes to tax breaks for property investors which will restrict negative gearing deductions to new builds (see our story in this issue) and end capital gains tax discounts for investors who buy pre-existing homes. The aim is to cut the number of investors competing against first-home buyers. Investors will be further stymied by a late change to legislation, passed in late June, that will block loans to buy residential property held in Self-Managed Super Funds. While the Government estimates this lowering of demand will shave two per cent from annual price growth over the two years, analyst Morgan Stanley has said it will be a more significant 5-10 per cent.
The changes announced on Budget night in May seemed to have an immediate impact on the market. Unlike transient impacts from war and interest rates, this is long-term structural change to cool the market.
3. Interest rates
Three rate hikes – in February, March and May this year* – on top of a globally-driven inflation spike has stressed household budgets and slashed borrowing capacity. While most economists believe we have hit the top of the rates cycle, none of the big four Banks see a rate cut arriving before the middle of 2027.
It’s interesting to note that while nationally average price growth has stalled, this has primarily been led by significant falls in capital cities, with regional prices growth holding up, indicating buyers are chasing value. Demographers have also noted a strong re-emergence in 2026 of the ‘tree-change’ phenomena that saw people leaving capital cities for regional centres during Covid years.
The takeaways
While prices are flattening, it comes off historic gains.
So, despite recent monthly falls, from June 2025 to June 2026 the market is still up 5.8 per cent overall with significant variance by capitals. Year-on-year Perth is up 17.1 per cent, Darwin 16.7 per cent and Brisbane by 13.9 per cent.
Sellers need to adjust expectations.
Analysts have noted a spike in homes quietly being withdrawn from the market after unsuccessful campaigns, with sellers hoping to wait out a flat period. The slump in auction clearance rates is a clear indicator prices are out of step with what buyers are now willing and able to pay.
Buyers have room to negotiate.
Property market observers say buyers are increasingly willing to accept an early offer rather than roll the dice and take a property to auction. In a falling or flat market there is always the concern conditions will deteriorate further and buyers can use this to their advantage. Always check how long a property has been on the market before making an offer.
Few people want to tackle a ‘renovators’ delight.
With construction costs once again climbing sharply, and interest rates uncertain, it’s a brave buyer who will tackle the unknown of a renovation project. Sellers can no longer price for potential and will take a hit if a property needs work.
Potential for increased new build demand.
While the Federal Government hopes investor cash will shift to new builds and bump up supply, if Australia’s construction industry can’t respond to an uptick in demand, it could increase prices in that market.
Whether this proves to be a brief slowdown or a deeper correction, buyers ready to negotiate hard for a long-term purchase have more leverage than they have had in years.
*Interest rate references are accurate as at July 2026 and may change over time.
Originally published in Haven Magazine – Spring 2026 Edition, this article has been republished on our website with permission.
