Australia's once red-hot housing market appears to be cooling, with Sydney – the nation's most expensive property battlefield – now showing signs of a full-blown slump as auction results crash to levels not seen since the Covid lockdown. 

In a stark sign of just how quickly the market is unravelling, less than half of the homes taken to auction over the weekend managed to sell – the weakest clearance rate since the market effectively froze in April 2020.

The sudden downturn comes as relentless interest rate hikes and the threat of sweeping tax changes unsettle potential buyers, draining confidence and leaving would-be homeowners retreating in fear. 

Melbourne is also buckling under the pressure, with just 906 homes went under the hammer last weekend, a sharp 14.9 per cent drop in a single week.

Cotality's Tim Lawless warned conditions are becoming increasingly uneven across Australia, as the cracks in the country's property boom continue to widen. 

'While mid-sized capitals like Perth and Brisbane continue to show resilience, the larger markets of Sydney and Melbourne are entering a clear downswing,' he said.

'The primary challenge facing the national market is a worsening mix of record-low affordability, high interest rates, and stubborn cost-of-living pressures.

'With mortgage rates remaining elevated and a sudden rise in transport costs, consumer confidence has dropped sharply, adding to the headwinds for housing demand.'

While prices are still climbing in Perth, Brisbane and Adelaide, the east coast's biggest markets are sliding fast with Sydney and Melbourne shedding 0.9 per cent and 1.5 per cent in just three months, and the high-end Sydney market taking an even sharper hit, tumbling 3.3 per cent.

Even Perth's once white-hot boom is starting to falter. 

The Agency's Corey Adamson warned the market is cooling rapidly, with listings surging past last year's levels to nearly 5,000 homes while buyer demand dried up.

He said the stark shift was clear in one Scarborough property that attracted just three offers, down from around 20 a year ago.

Mr Adamson said appraisal requests had 'gone through the roof' as more homeowners considered selling.

'So has the budget worked?' he said.

'I think family homes are going to probably benefit the most out of this, because if people are going, "Well I can't get a tax break here, I may as well put more money into my family home, because that's going to be our tax-free asset now". 

'"When we go to sell that, at least we're not going to pay capital gains on that".'  

Adamson said investors were retreating from mid-range homes and instead chasing higher-yield opportunities.

'I think the $900,000 to $1.3million market will be the hardest to move. It's too expensive for first-home buyers, and investors won't get any meaningful tax break - they can't negatively gear it.'

My Vervè buyers agent Lisa Evans said Brisbane's boom-time frenzy has almost disappeared, with the fear of missing out that once drove the market now fading. 

She pointed to a recent auction in the blue-chip suburb of Ashgrove, where a prestige home drew just two registered bidders over the weekend. 

'Six months ago this would have been snapped up for a crazy price,' she said. 'No one even was willing to bid what the first amount was and it went stale real quickly. 

'I feel like there is definitely some unsure people out there and people sticking more to their numbers rather than worrying about the fear of missing out.

'There's this shift that's just happened where buyers are now becoming more in control than the sellers, and that's exciting.'

Treasurer Jim Chalmers has staunchly defended the government's contentious tax changes, insisting a break from previous election promises was necessary to fix what he calls a 'broken' housing and tax system.

The sweeping crackdown targets some of the most lucrative tax breaks propping up the property boom, with the government moving to wind back capital gains concessions and curb negative gearing – long blamed for super-charging investor demand and driving prices higher.

It doesn't stop there, with Labor also taking aim at tax advantages that favour property over other assets and tightening discretionary trust rules through a new 30 per cent minimum tax on distributions – a move that could reshape investor behaviour.

And the impact may already be showing. 

Ray White chief economist Nerida Conisbee said there were early signs the budget shake-up is biting, with a sudden drop in buyer interest at open homes.

National attendance has slipped to just 2.1 groups per property – down from 2.5 a week ago and a sharp fall from 3.4 at the same time last year.

'This suggests that some buyers are stepping back, at least temporarily, as they assess the impact of recent policy changes, higher interest rates and broader economic uncertainty,' she said.

'The main issue remains confidence. The Budget changes are substantial, and it will take time for households and investors to understand how they affect decision-making. 

'Open home attendance is often one of the earliest indicators of sentiment, so the sharp fall this week is worth watching closely.

'The next few weeks will be important in determining whether this is a short-term pause after a major policy announcement, or the beginning of a more sustained adjustment in demand.'

Auctioneer Haesley Cus said removing investors from the market would likely reduce competition rather than improve affordability. 

'The only impact it will have is making the problem worse for tenants,' he said.

'We have already had an issue with investors selling to first home buyers. On the rare chance that an investor would have beaten them, to create a rental property for more tenants, this will just dwindle that even further.'

He warned the consequences could become more apparent in the future. 

'The problem is coming down the track when we need residential investors (for tenants) and they are all gone,' he said.