House prices across Australian capital cities fell 4.7% in the September quarter, the steepest quarterly drop on record, according to Domain data released Thursday. Perth recorded the largest decline at 7.4%, marking the biggest quarterly fall ever for that city, as all capitals moved into negative territory for the first time in 15 years.
Domain's House Price Report shows combined capital city house prices fell to $1,226,566. The downturn was broad, with every capital city recording a drop in the three months to September, a phenomenon not seen in 15 years.
Perth's house prices fell 7.4% ($88,664) to $1.115 million, the largest quarterly decline on record. Unit prices in the city dropped 6.5% ($45,487) to $659,561, also a record. Sydney and Melbourne recorded their largest quarterly house price drops in four years, falling 4.7% and 3.3% respectively.
Domain's chief of research and economics, Dr Nicola Powell, said the data shows a sharp turnaround in pricing conditions. She attributed the reversal to multiple headwinds: rate hikes, changes to investment property taxes, and cost-of-living pressures. Powell said the balance of power has shifted towards buyers, with homes taking longer to sell and sellers having to be more realistic about price expectations.
Property expert Mark Hay said the 7.4% fall in Perth was more drastic than what he was seeing on the ground, describing it as a fundamental correction after prices nearly doubled in some areas over the last three years.
The downturn was demand-led, according to Gerard Burg of data firm Cotality, driven by reduced borrowing capacity and lower buyer confidence after three consecutive interest rate rises and changes to investment taxes in the federal budget. Cameron Kusher, a property economist, noted that prices had already begun falling before the May budget and that the ultra-top end of the market had remained largely stable.
First home buyers are largely waiting on the sidelines, both Hay and Kusher said, citing uncertainty and the expectation that prices will fall further.
Dr Powell said she expects prices to continue falling for the rest of the year and into early next year. Kusher agreed, saying the downturn will likely drag on until interest rates are reduced.
Analysis
Why This Matters
- This is the first time all capital cities have experienced a simultaneous quarterly decline in 15 years, indicating a broad and synchronised housing downturn across Australia.
- For homeowners, falling prices reduce equity and may affect borrowing capacity; for potential buyers, lower prices are offset by higher mortgage costs and uncertainty.
- The shift could have broader economic effects, including reduced consumer confidence, less construction activity, and potential impacts on government revenue from stamp duty.
Background
The Australian housing market experienced an extraordinary boom over the past five years, with Perth prices rising 82% and unit prices 64% over that period. The Reserve Bank's aggressive interest rate hikes since last year have reduced borrowing capacity, while cost-of-living pressures have dampened demand. Changes to investment property taxes in the May 2025 federal budget added further uncertainty for investors. Domain data show that prices across capitals peaked last year and have been gradually declining, with the September quarter marking the steepest fall yet.
Key Perspectives
Dr Nicola Powell, Domain chief economist: Sees the downturn as a clear shift in the housing cycle, with buyers regaining negotiating power. She expects further falls and notes the market slowdown is now geographically broadened beyond Sydney and Melbourne.
Mark Hay, Perth property expert: Characterises the Perth decline as a fundamental correction after extraordinary growth. He says the market is still undersupplied relative to history, with listings well below a balanced market level, making the situation a "strange conundrum."
Cameron Kusher, property economist: Emphasises that the downturn is demand-led, with buyer confidence evaporated and affordability stretched. He expects the downturn to persist until interest rates are cut and notes that first home buyers lack urgency to enter the market.
Gerard Burg, Cotality: Points out that prices were already falling before the federal budget, and that three rate hikes have dampened confidence. Auction activity has roughly halved compared to last year.
What to Watch
- Whether the Reserve Bank cuts interest rates in coming months; economists suggest prices will continue to fall until then.
- First home buyer activity: if prices keep dropping, more may hold off, prolonging the downturn.
- The performance of lower-value vs. higher-value homes, as the gap in price declines has widened.