Sydney's residential prices have fallen about 7% from the peak in February, with a further drop of 1.4% in August, making it the city with the most significant decline in Australia's current housing market downturn.

Cotality data shows that the national housing price index fell by 0.9% in August, marking the fifth consecutive month of decline, with a cumulative drop of 3.6% from the peak in March; 93% of suburban housing prices across Australia's capital cities have already decreased.

Transaction volumes in Sydney are also contracting. Local residential transaction volumes have dropped over 20% compared to the same period last year, while national transaction volumes have decreased by 15.5% year-on-year, and are 11.5% lower than the five-year average, indicating not only price adjustments but also a decline in actual buyer demand.

Supply data shows characteristics of "new listings contraction and inventory backlog": as of the four weeks prior to August 23, new listings in Sydney were 14% lower than the five-year average, but total listings were 14.4% higher than the same period last year, and about 12% higher than the five-year and ten-year averages. Sellers are reducing the supply of new properties but still cannot digest the previously accumulated unsold inventory.

This round of adjustment is driven by rising borrowing costs, cost of living pressures, and changes to investment property tax incentives in the May budget. The new rules will restrict negative gearing benefits for existing investment properties purchased after May 12 starting from July 2027, while only new housing will retain related benefits; thus, the market has preemptively adjusted the valuation of investment property demand and future rental yields.

In terms of market mechanisms, sellers are facing a combination of "rising financing costs - shrinking investment tax incentives - high unsold inventory", leading some owners to lower prices to secure sales; buyers, on the other hand, are delaying entry due to mortgage pressure and expectations of further declines. Beneficiaries include cash-rich first-time homebuyers, rental housing developers, and long-term funds that can withstand holding periods; those under pressure include highly leveraged investment property owners, intermediaries and developers reliant on high transaction volumes, and families refinancing with property as collateral. If transaction volumes and prices continue to weaken simultaneously, new mortgage issuance, construction activities, and local fiscal revenues will also be adversely affected.

Source: Public Information