Sydney recorded its weakest weekend home auction clearance rate in over six years at 47.3%, according to Cotality data, as rising borrowing costs and property tax changes dampen market activity. Melbourne fared worse with just 40.2% clearance, marking the lowest level since September 2021. Both cities posted double-digit price declines in recent months, with Sydney down 2.7% and Melbourne off 2.3% through late June.

The downturn coincides with the federal government's property tax reforms passing parliament last week. These changes limit tax breaks for investors in existing housing and increase capital gains taxes, aiming to make homes more affordable for younger Australians locked out of the market. Treasurer Jim Chalmers noted that interest rates, economic conditions, and tax settings all influence housing dynamics, cautioning against overreacting to short-term volatility.

National auction volumes fell 13.4% year-over-year, while the preliminary clearance rate of 49.2% is expected to settle near 40% in final figures. The housing slump has erased approximately A$185 billion ($128 billion) in value from Australia's two largest markets. Bloomberg Economics suggests the Reserve Bank of Australia could cut rates before 2026 if the downturn persists through the third quarter.

Treasury forecasts continued price growth but at a slower pace than previous years, reflecting the cooling impact of tighter monetary policy and investor-focused tax reforms on Australia's previously overheated property markets.