Home price falls may signal end of housing super cycle

Along with rising rates and poor affordability, the tightening of property tax concessions in the budget and a political shift towards lower migration might mean a decades-long upswing was nearing a close, AMP chief economist Shane Oliver said.

Financial deregulation, low mortgage rates, high migration, generous tax concessions for property investors and the growth of two-income households boosting purchasing power had fuelled a super cycle during the past 30 years, Dr Oliver said.

That took house prices from well below trend to 20 per cent above trend, resulting in record unaffordability.

But chronic undersupply meant it might be premature to call an end to the super cycle.

"Many of its key drivers are now fading but the supply shortfall is key," he said.

"If it closes quickly, thanks to stronger supply or a faster fall in immigration, then the super cycle upswing may well be over."

Treasurer Jim Chalmers said the tax changes could increase supply by incentivising investors to fund new builds, which would still qualify for negative gearing and the 50 per cent capital gains discount.

If only one-fifth of investors in existing properties switched to new builds in 2025, it would have increased dwelling investment by about $25 billion, or about 25,000 extra houses per year, he said.

Nationally, dwelling values were flat, with the combined capitals down 0.1 per cent.

While prices rose in other major capitals, growth rates continued to slow.

Perth and Darwin posted the strongest monthly price increases at 1.5 per cent, followed by Brisbane and Hobart at 0.9 per cent and Adelaide at 0.5 per cent, while Canberra fell 0.2 per cent.

Sydney's median dwelling price stands at $1,282,020, while Melbourne is $812,621.

Price growth was stronger outside the capital cities, with regional Western Australia leading the way at 1.9 per cent in May and 22.7 per cent annually.

Cotality research director Tim Lawless said some of the weakness was part of the regular housing price cycle, but other factors were also at play.

"Late last year, it was more about affordability and serviceability challenges as housing prices were outpacing incomes," he told AAP.

"Then towards the end of last year we started to see inflation accelerating, the RBA taking a more hawkish stance - that was a blow to confidence - and from there we saw interest rates starting to rise, global oil shock and now a budget has been handed down."

Mr Lawless said the government's decision to restrict key investor incentives to new homes would likely slow their spending, but it was too early to see any significant impacts reflected in national data.

Auction clearance rates - considered a useful leading indicator for future property price rises - have reached a "new cyclical low" following the announcement of the tax changes, according to separate Cotality data.

"If we are making it easier for first home buyers to get a fair crack at auctions, then that's a good thing," the treasurer told reporters in Brisbane.

The housing slowdown was not welcomed by shadow treasurer Tim Wilson.

"The reason house prices are feeling an adjustment is because people aren't confident about their future," he told reporters in Canberra.

"I'll never welcome a time where Australians feel less confident about their future."

Around the nation, rents rose 0.6 per cent in May, the same as in April but slightly less than the first three months of 2026.

A very low national vacancy rate of 1.5 per cent - meaning demand for rental properties was high - was likely to keep pushing up rents in the coming months, Cotality warned.