Just 51.1 per cent of homes auctioned across capital cities this weekend sold, compared with more than 60 per cent a year prior, according to Cotality data.
Brisbane had the lowest figures, at 31.9 per cent, while just under 53 per cent of homes under then hammer in Sydney sold.
The percentages are the lowest Australia has had in five years, as the economy is stretched by conflict in the Middle East and measures announced in the budget cause investors to leave the market.
While the market was already softening, incoming government changes to the capital gains tax discount and negative gearing have likely amplified the downturn.
"Investors are going to have to switch strategies. Most have been very focused on capital growth," Ray White chief economist Nerida Conisbee said.
Sydney - as the most expensive and volatile market - is leading the trend.
Ms Conisbee said the market was likely to become more accessible to first home buyers by the end of 2026, though it may take several months for any benefit to be felt.
"Serviceability is hard, because we have had three interest rate rises and building costs have risen," she said.
"The fact that price growth is slowing is a good thing, it will just take time."
While young buyers will benefit, the downturn is unlikely to help renters in any serious way.
Investors are shifting their strategy to focus on yield, rather than capital growth, which could push up weekly rental prices in already-tight markets.
"Investors will do their best to pass through higher costs to renters, but can the market tolerate a material rise in rents? I'm not too sure about that," Cotality's head of research Tim Lawless said.
Rental vacancy rates are now at some of their lowest since the pandemic. A national average of 1.6 per cent in the April quarter is half that of five years ago, and renters are spending an average of a third of their income on rates.
Mr Lawless said household sizes are likely to grow, as people either move back with parents or stay longer in share houses.
Household sizes shrank to record lows of 2.5 people during the pandemic as the rental market weakened, but have picked back up in the years since.
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