New data from Cotality Home Value Index (HVI) shows Australia’s national dwelling values fell 1.2% in October.
This marks a seventh consecutive monthly decline and pushes the national market 6.7% below its March peak, shedding approximately $63,400 in median dwelling value.
The median home price across Australia currently sits at $884,855.
Meanwhile, national rents rose 0.9% over the three months to October, the slowest rolling quarterly pace of rental growth since January 2025.
Despite the slowdown, rising rents and falling dwelling values have lifted gross rental yields across the combined capitals to 3.8%, the highest level since May 2015.
The increase in yields comes as national vacancy rates rise to 2.3%, the highest level since January 2022.
"Although yields have risen to their highest level in more than 11 years, they are still nowhere near the levels needed to deliver a neutral or positive cash flow," Cotality research director Tim Lawless said.
When higher holding costs are taken into account, including investor mortgage rates approaching 7%, many landlords continue to face negative cash flow, per Cotality.
Upcoming changes to the tax treatment of established investment properties are also expected to weigh on returns.
"Insurance, strata fees, taxes and maintenance costs have all risen substantially over recent years, making these costs harder to absorb for investors in established properties who will no longer have the same negative gearing benefits from July next year," Mr Lawless said.
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Darwin, regional WA lead the yield race
The improving yield story is particularly evident outside Sydney (3.5%) and Melbourne (4.1%).
Darwin continues to stand out, with a 6.4% gross yield and annual dwelling value growth of 9.7%.
Across the capital cities, Darwin also posted the strongest annual house rent growth at 11.1% and unit rent growth at 11.7%.
Perth, despite recording a 1.7% monthly decline in dwelling values, offers a gross rental yield of 4.2%, while Adelaide sits at 3.7%.
Regional markets also remain attractive from an income perspective, with combined regional Australia delivering a gross yield of 4.4%, well above the combined capitals’ 3.8%.
Regional Western Australia leads the country with a 5.3% yield, while Regional South Australia and Tasmania both recorded yields of 4.4%.
Housing downturn expected to deepen
While improving yields may make residential property more attractive, elevated mortgage rates, higher holding costs and tax changes continue to weigh on returns.
Cotality notes investor demand has already weakened, with new investor loan commitments falling 8.6% in the June quarter, the sharpest quarterly decline since September 2022.
Meanwhile, housing values are expected to remain under pressure as markets price in the likelihood of another Reserve Bank rate hike and households grapple with affordability constraints and softer economic conditions.
"Another rate hike would mean borrowing capacity has dropped by around 11.5%, or more than $105,000 through the rate-hiking cycle to date," Mr Lawless said.
This more than offsets the approximately $63,400 decline in the national median dwelling value.
See also: Another rate rise may hurt confidence before it hurts property values
However, limited housing supply, elevated construction costs, lengthy development timelines and ongoing population growth are expected to help contain the downturn.
Despite this, the balance of risks remains skewed to the downside, with price falls on track to be the largest in at least 40 years.
"The prospect of further interest rate hikes, reduced borrowing capacity, worsening serviceability constraints, softer labour market conditions, low consumer sentiment and weaker investment demand are likely to weigh on housing activity and values," Mr Lawless said.
Image by jcomp on Magnific
