Key facts
- First home buyers are showing 'cold feet' due to rising interest rates and falling prices.
- Investor demand for existing properties has decreased following recent tax reforms and reduced borrowing capacity.
- Prices for homes within the first home buyer scheme caps started to fall in April.
- The most expensive properties are seeing steeper price declines in cities like Sydney and Melbourne.
- Demand for newly built homes remains robust among investors due to continued tax advantages.
- Auction clearance rates have fallen below 50% in recent months.
Australia's housing market is undergoing a significant transformation, marked by a downturn in demand from first-time buyers and a slump in investor activity, particularly for existing properties. This shift comes nearly two months after a series of interest rate hikes and sweeping tax reforms aimed at cooling the market.
First-time buyers, who had previously driven demand with government support schemes like the 5% deposit initiative, are now exhibiting 'cold feet.' Data from the Australian Bureau of Statistics shows a substantial decrease in new loans for this demographic. Credit agency Equifax reported a 10.9% drop in overall home loan applications in May compared to the previous year, with first-time buyer applications down by 13.4%. Loan Market observed a 20% decline in first home loan applications in June compared to the same month in 2025.
Analysis of property prices reveals that homes priced below the caps for the 5% deposit scheme began to see price falls in April, with properties above the caps also starting to decline in June. Brisbane buyers' agent Lauren Jones noted that despite a quieter market, first-time buyers are hesitant, often spooked by falling prices and the average new loan rate exceeding 6%.
Demand for the most expensive properties is collapsing more deeply, with higher-end homes in Sydney, Melbourne, and Canberra experiencing significant price drops. Sydney's top quartile has seen a median price fall of approximately $90,000 in the last three months. In contrast, buyers of more affordable homes remain less picky, willing to 'take what they can get.'
Investor activity has also been curtailed, especially for existing homes, following federal budget changes that restricted negative gearing access. Banks have reduced investors' borrowing capacity by around 20%. While investor lending had been at a decade high, it fell by a fifth between the budget announcement and mid-June, according to Westpac. However, investors continue to show interest in new homes, which retain tax advantages. Data from Loan Market indicates a 31% increase in new home applications from investors in June, and new builds represent a growing proportion of investor loans.
The most apparent sign of market turmoil is the collapse in auction sales, with fewer than half of homes listed for auction successfully selling since late May. Many sellers are opting for pre-auction contracts, with about 40% of listed homes sold before auction day. Close to 20% of scheduled auctions are being withdrawn weekly. Overall home sales in capital cities fell by 16.2% in the three months to June, leading to homes staying on the market longer and an 11% increase in advertised supply.