Cotality’s national Home Value Index (HVI) fell 0.7% in July, the biggest single-month decline since December 2022.
The national median value currently sits at $928,421.
Sydney and Melbourne remained the biggest drags on the market, same as in the previous month, with values falling 1.4% and 1.2% respectively.
Housing downturn extends to mid-sized capitals
Similarly, Brisbane recorded a 0.6% decline over the month, while Adelaide slipped 0.2%, showing that the weakness is no longer confined to the two largest capitals.
Taking into account Cotality’s historical revisions, the July HVI marks the second consecutive month of declines for both cities.
Perth managed a modest 0.1% increase following a revised 0.5% correction in June, 120 basis points lower in the latest update.
"Compared with sizeable increases across December and March quarter, this broader softening highlights a swift loss of momentum across the board," Cotality head of research Gerard Burg said.
Over the three months to July, combined capital city home values fell 2.5%.
The demand-driven loss of momentum has likewise hit the regional markets, with the combined regionals recording its first decline since January 2023, down 0.2% in July.
National dwelling values are now 2.0% below their March 2026 peak, per Cotality.
Rental yields continue to rise, but is it enough?
The national rental index edged higher by 0.4% in July, keeping the annual growth rate elevated (5.9%) for the third consecutive month.
This is equivalent to an additional $40 renters have to fork over weekly over the past year.
With increase in rents and decline in home values, gross rental yields continue to rise.
Cotality revealed gross rental yield across the combined capitals was 3.56%, its highest rate since August 2019.
Across the major capitals, yields are highest in Melbourne (4%) and lowest in Sydney (3.3%) and Brisbane (3.4%).
While yields have improved, Mr Burg said the increase has been modest relative to higher borrowing costs.
"While yields have moved higher since the start of the year, these increases have been far more modest than the lift in the cost of borrowing," he said.
Considering the latest changes to negative gearing, Mr Burg said modest increases in yields "will not be enough to encourage purchases of existing properties".
See also: How negative gearing works
What’s in store for Australia’s housing market?
Cotality expects home values to weaken further as affordability and serviceability constraints continue to weigh on buyers.
Additionally, weaker consumer confidence has weighed on housing demand, while policy changes announced in the federal budget have also affected investor sentiment.
"In the short term, these pressures are unlikely to ease, with the temporary fuel excise discount, which ends 2 August, set to add further pressure to household balance sheets," Mr Burg said.
"There remains some uncertainty around interest rates moving forward, although the likelihood of any further rate hikes from the RBA has faded."
The RBA kept rates on hold in June, and with latest CPI data coming in softer-than-expected, the consensus view is that the Board will remain on hold next week.
Despite these downward pressures on home values, Cotality expects low unemployment, population growth and limited housing supply could help prevent a sharper correction.
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