The latest Cotality data says national home values flatlined in May. That is not what our discovery calls sound like. Our Q2 read lays the numbers over what clients are actually telling us, from defensive equity moves to the budget rattling investors.
The latest Cotality numbers say the national housing market did almost nothing in May. Values flatlined at 0.0% for the month, the slowest reading since the cycle turned. If you only read the headline, you would picture a quiet market where not much is happening and everyone is waiting.
That is not what our week sounds like.
We sit on a lot of first conversations. Across discovery calls this quarter, from first home buyers to seasoned investors to families upgrading into a forever home, the mood is anything but flat. People are moving, hesitating, recalculating and quietly pulling levers, often all in the same conversation. The data describes the surface. The calls tell you what is happening underneath it.
So here is our Q2 2026 read. We have taken the Cotality Q2 webinar, the most reliable read on the national market, and laid it over what we are actually hearing from clients. The aim is to give you the numbers and the human version of the numbers in the one place.
October 2025 was the peak. National values were rising at 1.3% a month back then. By May 2026 that pace had eased all the way back to zero, and the combined capitals slipped 0.1% over the month. Sydney, Melbourne and the ACT did the dragging.
The national figure hides the real story, which is a market running at two very different speeds. Looking at the rolling 28 day change to 23 June, Perth was still up 0.8%, Brisbane up 0.4% and Adelaide up 0.3%. Over the same window Sydney was down 1.2% and Melbourne down 0.8%. Even the mid sized capitals that have led the cycle are losing momentum, but they are still growing while the two biggest markets go backwards.
What we hear from buyers maps onto this almost perfectly, and it usually shows up as a fear of being left behind rather than relief that prices have stopped running. One Sydney first home buyer put it plainly: her worry was that the longer they wait, the more the market outruns them, and that there is not much you can do to control that. A flat market does not calm that buyer down. It makes her watch the clock.
In Melbourne the feeling is different again. We spoke with a buyer who had set her sights on around $950,000, and over a single conversation she reset her thinking down toward the $750,000 to $800,000 range once the numbers were in front of her. Flatness in Melbourne is not abstract. Plenty of owners there have sat on properties for three years and watched them go nowhere, which Cotality's five year figures confirm below. For a buyer, that same flatness can be the thing that finally makes the timing feel right.
The standout chart in the Cotality pack is the five year view. Across the past five years, Perth values are up 91.4%, an average gain of about $501,600. Brisbane is up 80.6%, around $502,600. Adelaide is up 75.3%. Regional Western Australia leads the country at 93.3%.
Then look at the other end. Sydney is up 17.0% over five years, about $186,100. Melbourne is up just 3.3%, around $25,600. Same five years, wildly different outcomes depending on where you owned.
The headline is that most homeowners are sitting on real equity. What the data cannot show you is what they are doing with it, and here the pattern is clear in our conversations. People are not racing to spend it. They are pulling equity out and holding it.
A NSW investor described the instinct exactly. Working alongside their financial adviser, the plan was to make the least regrettable move available, which for them meant releasing as much equity as they sensibly could and parking it while they worked out the next step. We are seeing that play out again and again. Owners extract the equity, sit it in offset, and wait for clarity on rates, the budget or a life event before they commit it to anything.
For some that holding period has a purpose. A Melbourne couple in their mid forties walked us through a ten year plan to clear the debt on their home while using a debt recycling strategy to build an investment pot for their kids. The equity is the fuel. The motivation is generational, not opportunistic.
For upgraders, the equity is rarely the problem. The fear is the choreography. One Melbourne couple looking to move into their forever home had the borrowing capacity sorted and the deposit ready, and the thing that kept them up at night was lining up the sale and the purchase so they did not get caught holding two properties or none. The buffer is real. Bridging anxiety is what stalls the deal.
Cotality is blunt on the investor outlook. Investors made up 41% of mortgage demand by volume and 40% by value in the first quarter, near cyclical highs, and that share is set to fall. Two forces are pushing it down at once. The cycle is winding off its peak, and the federal budget has changed the rules. As the report notes, negative gearing is no longer an option on established homes, and the capital gains tax concessions have been pared back.
In the room, this comes up in almost every investor conversation, and it usually comes up unprompted. People raise it themselves, then wait to see how we react.
The more interesting part is where the money goes next. One Melbourne couple were comfortable, because their strategy runs through shares and debt recycling rather than investment property, and negative gearing still applies to share investments. Another investor was openly weighing whether to put their cash anywhere but property, turning over ideas from exchange traded funds to a tiny home on farmland to a display home lease back, partly to work around the rule that favours new builds over established ones. These are not edge cases. They are early signs of capital quietly rotating out of residential investment and into other assets.
The hardest version we saw was a Sydney first home buyer couple whose rentvesting plan, buy an investment first and keep renting where they live, fell apart on the call once the negative gearing change was on the table. A strategy that made sense a year ago no longer stacked up.
Our own strategists are bracing for the same shift. The early read is that the changes could trim borrowing capacity for affected investors by around a quarter, and that some lenders have been slow to publish updated servicing calculators, which is holding people back from acting. For anyone with an investment move in mind, that interim window matters. The rules have changed faster than the lenders have repriced for them.
Here is where a lot of clients are still hoping for relief that the data does not support. After an earlier cut, the cash rate sits at 4.1%, but the direction of travel has flipped. A global oil shock has pushed headline inflation back up, core inflation has been climbing since September, and quarterly inflation rebounded to 1.0% in both the first and second quarters. Markets have noticed. Cash rate futures are now pricing the rate higher, toward 4.46% by December 2026, and most economists expect rates to stay elevated into 2027.
Affordability is stretched to match. Cotality has the national dwelling value to income ratio at 8.4, and a new borrower now needs about 45.9% of household income to service a fresh mortgage. Household debt sits at 177% of annual disposable income.
When buyers accept that cuts are not coming, they stop waiting on the RBA and start working the one lever they can still move, which is income. Almost every buyer we spoke with this quarter was timing a decision around a pay rise rather than a rate change. One was waiting four weeks for a July salary bump worth roughly an extra hundred thousand dollars of borrowing capacity. The framing that lands hardest in these calls is simple: every $10,000 of extra income is worth somewhere around $40,000 to $50,000 in borrowing power, so knowing your worth at your next salary review now does more for your purchase than waiting for the central bank.
For the self employed, the same lever cuts both ways. One Melbourne buyer who runs his own business explained the bind neatly. He is good at claiming deductions to keep his tax down, so his net income last year landed around $80,000 even though he turned over about $120,000. The habit that protects his cash flow actively shrinks what a lender will give him. Another buyer admitted he is hanging onto a part time job he wants to quit, purely because leaving it would weaken his application. The serviceability buffer is not just a number on a calculator. It is shaping the jobs people keep and the way they run their books.
It helps to know where rates actually sit today, beyond the averages. One investor read his current rates straight off his statements during our call: 6.12% on the home loan and 6.39% on the investment loan, both after the most recent rise. That is the real cost of money right now for a borrower in the thick of it.
The rental market remains tight. Vacancy held at 1.5% nationally in May and rents were rising at about 5.9% a year, with house rents up 6.0% and units up 5.5%. Gross yields have ticked up but are still low at 3.6% nationally, and lower again in the big cities at 3.2% in Sydney and 3.3% in Brisbane. For a geared investor paying a rate in the low to mid 6% range, that yield gap means most are wearing a cash flow loss.
Tenants feel the squeeze from the other side. Cotality has renters now handing over close to a third of their pre tax income, with Sydney house rents around $872 a week and Perth around $790.
That pressure is a buying trigger, and we hear it framed in emotional terms. A Melbourne first home buyer who had rented for two and a half years described the simple pull of wanting her money going toward something of her own rather than into the rental crisis. We do push back on the dead money line, because money tipped into a property that is not growing is its own kind of dead money, and that tension between rent escape and a flat market is a live debate on a lot of calls.
The rental market is also producing some creative deals you will not find in any dataset. One Parramatta buyer is purchasing the very unit she rents, with the developer crediting her rent toward a 5% deposit and offering a twelve month settlement. And not every renter is being pushed to buy. One Sydney couple have stayed put for three years precisely because their rent has barely moved while their friends' rents climbed. A below market rent can act like golden handcuffs and delay a purchase, which is the opposite of the usual story.
After a long stretch of tight listings, stock is rebuilding. There were about 129,697 active listings nationally over the four weeks to 21 June, 3.8% above the same time last year, though still 5.5% below the five year average. New listings are running 5.5% above last year. Sales peaked back in October 2025 alongside values, and capital city volumes for the three months to April were down 5.4% on a year earlier. More choice, slower selling.
New supply is another matter. Construction costs have jumped 31% over the past five years, builder margins are thin, insolvencies across the sector remain high, and a unit project now takes an average of nearly 29 months to move from commencement to completion. The pipeline of approved and commenced but not yet finished dwellings is still large.
This is where off the plan caution shows up in our calls. One Melbourne buyer described booking removalists and changing her address before being told the build was not ready, then waiting a further year, burning through two pre approvals along the way. For another Parramatta buyer, the bigger risk landed when we walked through valuation. If a unit contracted at $908,000 values at $800,000 by settlement in a softer market, the buyer still has to settle at $908,000 and find the difference in cash. In a flat or falling market, off the plan is not automatically the cheap entry point it looks like. It can put a deposit at risk.
The First Home buyer support has a sharp edge at $1.5 million. Cotality's affordability data already shows how hard entry has become, and the cap is now visibly distorting where properties sell. We have watched homes cluster at $1,501,000, and buyers have noticed too. One client had seen a sale at exactly that kind of figure and understood the cost instantly, because going a single dollar over the cap can lift the cash needed at settlement by well over $200,000.
Even strong incomes feel it. A Sydney couple earning a combined $360,000 mapped an 18 to 20 month timeline just to save their deposit. A single buyer on around $140,000 described the quiet weight of buying on her own, which is one of the toughest briefs in property. And underneath a large share of completed first home deals sits the same quiet enabler: a parental gift, a family loan, or a parent offering to match a deposit. The bank of mum and dad is doing more structural work in this market than any dataset will admit.
Because the word downturn gets used loosely, the historical context is worth holding onto. Over the past 40 years, the combined capital city market has been through ten declines, and not one of them took values more than 8.2% below their peak. Most lasted less than a year. Home sales typically fall about 25% from peak to trough before recovering. Individual cities can fall harder, Perth dropped 15.3% after the mining boom, but the national picture has been shallower and shorter than the headlines usually suggest.
The lending data adds one more point worth knowing. When the market softens, investor lending falls hardest of all the borrower groups. With the budget changes layered on top of a cooling cycle, that is the segment most likely to step back this time, which is exactly what our investor conversations are signalling.
Put the data and the conversations together and a clear picture forms. The market is flat at the national level and split underneath, most owners are sitting on equity but holding it defensively, investors are recalculating hard around the budget, rate relief is not on the table, rents keep climbing, and first home buyers are leaning on family to get in. None of that is visible in a 0.0% headline.
For clients, the practical takeaways are steady ones. If you are buying, income is the lever you can move right now, so get your position and your serviceability mapped before you fix on a price. If you are an investor, the budget changes deserve a proper look before your next move, not after it. If you are upgrading, the timing and bridging piece is usually the real work, not the borrowing. And if you are sitting on equity, pulling it and holding it can be sensible, as long as it is part of a plan rather than a reflex.
For our referral partners, the throughline is that most of these are not lending problems. They are timing, structure and life stage problems that happen to involve a loan. That is the conversation we are built for, and it is the one we are having every day this quarter.
If you have a decision in front of you, or a client who does, the numbers are only ever half the picture. We are happy to help you read the other half.
Sources: Cotality Q2 2026 Housing Market Webinar (Tim Lawless, Gerard Burg). Client sentiment drawn from de-identified Alcove discovery calls, April to June 2026.
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