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Approaching the Bottom? Early Signs of Stabilisation in Sydney and Melbourne
I’m John Bekiaris, Head of Research – Property & Credit at Equitifund. With a background in property economics, market research and investment analysis, I spend my time analysing the economic forces shaping Australia’s housing market. Each quarter, I’ll share my perspective on the trends I’m watching and what they could mean for buyers, investors and the broader property market.
What I'm Watching This Quarter
Australia’s property market continued to soften throughout the September quarter, but beneath the negative headlines, some encouraging trends are beginning to emerge in certain markets.
Sydney’s rate of decline appears to be stabilising, Melbourne’s correction is moderating, and units are demonstrating greater resilience than the broader housing market. Meanwhile, buyers are regaining negotiating power, rental yields are improving, and the labour market is cooling without widespread job losses.
Could we be approaching the bottom of the cycle? While it’s too early to say with certainty, several indicators suggest parts of the market may be moving closer.
Different Markets, Different Stages of the Cycle
One of the more interesting developments this quarter has been the divergence between Australia’s capital cities.
According to Cotality, Sydney dwelling values declined by 1.4% in each of July, August and September. Prices are still falling, but importantly, the rate of decline is no longer accelerating.
Melbourne’s trend is more encouraging, with monthly declines moderating from 1.2% in July to 1.1% in August and 0.7% in September. Meanwhile, previously resilient markets are now experiencing greater weakness, with Brisbane’s 1.5% decline in September exceeding both Sydney and Melbourne.
This highlights an important distinction: Australia’s property markets don’t move through cycles simultaneously. Having entered the downturn earlier, Sydney and Melbourne may also be further advanced in their adjustment.
But there’s another layer to this story. Just as there are different markets across Australia, there are markets within markets. Detached houses and apartments can perform very differently, even within the same city, and this is becoming particularly evident in Sydney and Melbourne, where units are outperforming the broader dwelling market.
In September, Sydney unit values declined approximately 1.0%, compared with 1.4% across all dwellings. Melbourne units fell just 0.3%, compared with 0.7% across the wider market, marking a third consecutive month of moderating unit declines.
Affordability appears to be an important driver. As higher borrowing costs reduce purchasing power, buyers are increasingly considering more accessible housing alternatives, providing relative support for apartments while more expensive detached properties face greater pressure. The takeaway is that even in a declining market, not all locations or property types are experiencing the same correction, and some may stabilise earlier than others.
Buyers Are Regaining Negotiating Power
Another important shift has been the changing balance between buyers and sellers. According to Cotality, advertised listings across the combined capital cities were 23.1% higher than a year earlier in September, despite new listings being 9.2% lower.
In other words, the increase in available stock isn’t simply the result of more properties coming onto the market. Homes are just taking longer to sell, with median selling times increasing from 23 to 39 days. As properties remain on the market for longer, vendors are increasingly having to adjust their expectations.
We’re also seeing tentative signs of buyers and sellers finding common ground in the auction market. Melbourne’s clearance rate reached 57.3% in mid-September, its highest since March, while Sydney reached 52.8%, its strongest result in seven weeks. While these improvements have not been sustained consistently, they suggest that transactions can recover as vendors adjust their expectations to meet buyers.
This is an important part of the stabilisation process. Before prices can recover, the gap between what buyers are willing to pay and sellers are prepared to accept generally needs to narrow.
For buyers, the result is greater choice, less competition and more negotiating power than we’ve seen in recent years.
Improving Yields and the Supply Outlook
While property values have declined, rental income has generally proven more resilient, creating another encouraging development for investors. National gross rental yields have increased from 3.61% to 3.85% over the past year, reaching their highest level since August 2019, according to Cotality.
Rental growth has moderated, but national rents still remain 5.5% higher than a year ago, with vacancy rates still below their pre-pandemic decade average. For investors, this means lower entry prices are increasingly being accompanied by improved income returns.
Historically, rental yields have often reached cyclical highs around periods of weaker property values, before compressing as capital growth returns. While not a reliable predictor of a market bottom, the current improvement in yields is definitely worth watching.
Looking further ahead, Australia’s housing supply challenge also remains unresolved.
Despite recent improvements in construction activity, ABS trend data shows building approvals declining by 2.6% in NSW and 1.8% in Victoria during August. National approvals for units also fell 2.6%.
This matters because today’s weaker market conditions are also making tomorrow’s developments harder to deliver. Higher financing costs, construction expenses and feasibility constraints continue to weigh on the supply pipeline.
The same pressures weighing on property values today may be limiting the housing supply available when demand eventually recovers.
A Cooling Economy, Without a Collapsing Jobs Market
The broader economy is also showing signs of adjustment, particularly in the labour market.
Unemployment increased to 4.6% in August, its highest level since November 2021. However, employment continued to grow, with approximately 39,500 jobs added during the month. Part of the increase in unemployment reflects more Australians entering the labour force rather than widespread job losses. This distinction matters for both the RBA and the housing market.
A gradually cooling labour market could help ease inflationary pressures without triggering the sharp deterioration in household incomes that often accompanies more severe property downturns.
Of course, inflation remains elevated, and the RBA’s recent decision to increase the cash rate to 4.60% means further tightening can’t be ruled out, but if the economy can continue to slow without significant job losses, it would provide a more favourable foundation for eventual market stabilisation.
What This Means for Buyers
Property market turning points are rarely obvious until after they have occurred, and there are still meaningful risks ahead.
However, we’re beginning to see some encouraging developments in particular markets. Sydney’s decline is no longer accelerating, Melbourne’s correction is moderating, and units are demonstrating greater resilience in both markets.
At the same time, buyers have regained negotiating power, rental yields are improving and longer-term housing supply constraints remain unresolved.
None of this guarantees we’ve reached the bottom. But for long-term investors, the objective shouldn’t necessarily be to predict the exact turning point, it should be to recognise when valuations, rental returns and market conditions begin shifting in their favour.
The opportunity isn’t that prices can’t fall further, they can. It’s that buyers now have more choice, greater negotiating power and improving yields, while some of the earliest signs of market stabilisation are beginning to emerge.
Disclaimer: This article is intended to provide general information and market commentary only. It does not constitute financial, legal, taxation or investment advice and has been prepared without considering your personal objectives, financial situation or needs. Information may change over time, and while we aim to keep our content accurate and up to date, we cannot guarantee its completeness or currency. Before making any financial or property-related decision, you should obtain independent professional advice relevant to your individual circumstances.
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