The housing market has taken a hit nationally, as median value growth loses momentum across the country, with Australia’s major capitals leading the decline.

According to the latest data from Cotality, Australia’s housing market entered a period of stagnation in May, driven by declines in the nation’s two largest capital cities, Sydney and Melbourne.

Cotality’s latest Home Value Index found no growth in dwelling values nationally, while Sydney fell by 0.9 per cent and Melbourne by 0.8 per cent, equating to more than $10,000 in median value lost for home owners.

Similarly, Canberra experienced a minor drop in home values, down 0.2 per cent in May.

Of the remaining capital cities, Perth and Darwin had the strongest results, each recording a home value growth of 1.5 per cent over the month, followed by Brisbane and Adelaide’s 0.9 per cent jump.

According to Cotality research director Tim Lawless, the gap in housing market strength across the capital cities has continued to widen, driven by markedly different market fundamentals.

“We are continuing to see multi-speed conditions across Australia’s housing sector, with Perth and Melbourne at opposite ends of the spectrum,” Lawless said.

“While the speed of value change remains very different from city to city, the direction is becoming more consistent, with most markets losing momentum as demand-side headwinds intensify.”

The report found that the drop in market momentum had been building for a significant period before the economic headwinds from rising interest rates, conflict in the Middle East, and the more recent tax changes.

According to the data, property values in the lower price tiers had proven more resilient than those in the higher tiers, although growth remained quite moderate.

In addition to the easing property values, Lawless said housing demand had also slowed, with the national market dropping 2.2 per cent lower than a year ago, with Sydney and Melbourne impacted the most.

“The largest drop in estimated sales can be seen in Sydney and Melbourne, down 17 and 14.2 per cent on levels a year ago,” he said.

He said that the two capitals were also the cities that had advertised rising listing volumes above average, providing more choice and better leverage for buyers.

Additionally, Lawless said the rental market was also under significant pressure, with a national vacancy rate of 1.5 per cent, in line with record lows, pushing rents upwards.

“With the cost of renting up about $204 per week over the past five years, renters are likely to be at or approaching a ceiling on how much they can pay, potentially driving structural changes in rental demand,” Lawless said.

He said that it was likely that rental households were becoming larger as group households and multigenerational living situations help tenants cope with higher rental costs.

According to Lawless, the overall sentiment regarding the property market was that it would move through a more subdued phase in the back half of 2026.

“The most likely outcome is a further loss of momentum and a drift towards lower home values, rather than a sharp correction. That said, conditions are likely to remain uneven across regions and price points through the remainder of 2026.”

“The key watch points from here are the path of inflation and interest rates, the trend in consumer confidence, and whether listings continue to rise,” Lawless said.

This article was first published on Real Estate Business, a sister-brand of Property Buzz.