Diverging price trends emerge between Sydney, Melbourne and smaller capital cities
Affordability constraints, tighter serviceability tests and higher household expenses in Sydney and Melbourne are contributing to a marked 'K-shaped' pattern in housing conditions, with the two largest capitals slowing while Perth, Adelaide and Brisbane continue to record gains.
According to Cotality’s December Monthly Chart Pack, dwelling values over the rolling 28‑day period have risen by more than 1% in the mid-sized capitals, while growth in Sydney and Melbourne has flattened close to zero. The figures underline the growing divergence in performance across the main metropolitan markets.
Source: Cotality
Cotality economist Kaytlin Ezzy said record-low affordability this year remained a key factor behind the varying trajectories. “Affordability challenges and supply constraints are not new issues, but they are influencing the pace of growth across both capital cities and regional centres,” she said.
Ezzy (pictured right) noted that conditions in the mid-sized capitals were being underpinned by a combination of price points and listing volumes. “Perth, Adelaide and to a lesser extent Brisbane, while at record high prices, still offer comparatively accessible entry points amid low levels of advertised supply, which is helping to maintain upward pressure on values,” she added.
By contrast, the largest markets are grappling with different demand and supply dynamics.
“Sydney and to a lesser extent, Melbourne, are navigating higher living costs, tighter borrowing assessments, moderating buyer demand, along with a lift in newly advertised stock levels compared to this time last year, and the short-term slowdown in growth is consistent with those conditions,” Ezzy said.
Auction performance is also contributing to the loss of momentum at the top end of the market. Clearance rates in Sydney and Melbourne have slipped below their decade-long averages after peaking at a two-year high in September, signalling weaker buyer depth and greater vendor discounting pressure.
Despite the Reserve Bank of Australia leaving the cash rate unchanged at its latest meeting, Cotality expects low stock levels and targeted first home buyer schemes to keep prices under some upward pressure into 2026, particularly in more affordable segments.
“If interest rates stay where they are for a while, the pace of buying is likely to ease from what we saw earlier in the year,” Ezzy said. “Gains in home values have already surpassed the increases in borrowing capacity provided by this year’s rate cuts, and a more cautious interest rate outlook is likely to weigh on confidence.
“That combination can slow activity, even when supply is tight. Moving into the new year, more affordable homes are expected to remain the strongest part of the market because most buyers are working within strict affordability and serviceability limits.”
Investor and first-home buyer activity is heavily concentrated at the lower price points, Ezzy added, reinforcing the split between cheaper and more expensive stock.
“Competition between first-home buyers and investors has already pushed up values at the lower end,” she explained. “By contrast, growth at the upper end in Sydney and Melbourne is starting to flatten as buyers shift their attention towards more affordable options.”
For mortgage professionals, the emerging pattern suggests continued demand in lower-priced brackets and in Perth, Adelaide and Brisbane, while borrowers in Sydney and Melbourne are more constrained by serviceability limits and higher living costs, even as rates stabilise.
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