The Residential Review: May 2026

With the warmer months behind us and autumn taking hold, the temperature across Australia’s housing markets has started to diverge.

There’s plenty to unpack in our first monthly update, as another rate hike, rising fuel costs and the ongoing stand-off in Iran continue to dominate the headlines.

A MARKET COOLING AT DIFFERENT SPEEDS

Australian dwelling values rose by 0.3% in April according to Cotality, lifting annual growth to just under 10%, marking a slowdown from March’s 0.7% month-on- month performance. However, this masks an uneven performance.

Sydney and Melbourne both recorded increasing falls over the three months to April ( 0.9% and 1.5% respectively), a change in wind direction from 2025. In contrast, smaller capitals continue to push higher. Perth, Adelaide, Brisbane and Darwin all recorded quarterly price growth of 3% or more, with Perth leading the cycle, up a remarkable 6.8% in just three months.

POPULAR PERTH: SUPPLY CONSTRAINTS CONTINUE TO DRIVE GROWTH

Values in Perth have more than doubled since 2020, supported by a pronounced supply demand imbalance. Western Australia (WA) boasts the strongest population growth of any state in recent years, underpinned by sustained inflows of skilled migrants and working holiday makers.

At the same time, housing delivery has failed to keep pace. Cotality noted that since Q1 2020, the share of the country’s population growth in WA was nearly 17%, versus just 10% of completed dwellings. And UDIA forecasts suggest Greater Perth will undershoot required housing supply by around 25,000 dwellings over the next five years, further worsening the imbalance.

With rental vacancy at just 1.2%, comparatively affordable house prices and yields above those on offer on the East Coast has heightened competition between first home buyers and investors in Perth. Investor lending runs close to 40% of new housing finance in WA, well above the state’s long run average. Properties are selling at pace, with average days on the market at just nine – roughly three times faster than the national average.

SYDNEY SPLIT: A MARKET OF TWO HALVES

Sydney remains Australia’s most expensive housing market, with a median dwelling value approaching $1.3 million - affordability is once again the key driver.

Market conditions in the first four months of 2026 have been defined by price point. Lower priced stock still attracts demand from first home buyers, with the expansion of the Government’s 5% deposit scheme further stoking price growth for entry level apartments. But activity at the upper end has softened, as higher borrowing costs and reduced buyer urgency translate into greater price sensitivity.

This changing dynamic is evident in the latest Cotality data. Sydney apartments outperformed houses in the three months to April, while values in the lower quartile rose by 0.7%. Meanwhile prices in the top 25% of the market declined by -2.4%, with prestige Eastern suburbs such as Tamarama and Bondi Beach cooling by almost 10% in three months.

Buyers in these exclusive markets are more discretionary and highly sensitive to economic and geopolitical events that could dampen wider wealth portfolios. We noted record volumes of $10m+ transactions in 2025 across Sydney’s luxury market, so a natural slowdown was somewhat expected. But the negative news cycle of conflict in the Middle East, stock market volatility and a changed outlook for interest rates has created a mismatch in pricing between vendors and buyers at the top end. With both business and consumer confidence collapsing in April and a Federal budget on the horizon, we expect that buyers who do not need to transact will take a wait and see approach for the time being.

Next Tuesday (12th) marks the Federal Budget. It will be a tough month for highly leveraged investors who, on the back of another 25 basis points rate rise announced by the RBA this week, will soon be subject to a greater Capital Gains Tax (CGT) bill on properties held for more than 12 months. It remains unclear on how the new policy will apply to existing assets, but trusts will also be exposed to the CGT discount changes. Reforms to negative gearing are also expected, in a budget aimed to please younger voters and deter property investors.