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Sydney’s median house price has slipped back from an all-time high as poor affordability and deteriorating consumer confidence weigh on the market.
A median-priced Sydney house cost $1,791,643 in March, down 0.04 per cent or $772 over the quarter, Domain’s latest House Price Report, released on Thursday, reveals.
Separate figures show the supply of new housing is lagging the federal government’s target.
Dr Nicola Powell, Domain’s chief of research and economics, said the market had entered “a new phase” and that weaker selling conditions were likely to persist.
“I really think this is just the beginning, and that what we’ve seen over the first quarter of this year is the start of greater softness that will continue as the year unfolds.”
Two unexpected interest rate rises, in February and March, have constrained borrowing capacities, while the outbreak of the US-Iran war has given some prospective buyers pause, Powell said.
“Those rate hikes, followed by an escalating war in the Middle East and its impacts on supply chains and petrol prices, have really affected consumer confidence. We now have a much more cautious buyer across Sydney.”
Although the median house price declined slightly in the March quarter, it was up 6.6 per cent over the year, keeping a typical house “out of reach” of many buyers, Powell said.
Meanwhile, poor affordability is pushing some home-buying hopefuls out of the house market, Powell said, as suggested by the comparative strength of the unit market this calendar year.
Sydney’s median unit price rose 0.6 per cent over the quarter to notch a new record of $848,227. Over the year to March, it was up 3.5 per cent.
“Affordability remains a key theme in Sydney. Affordable property types are holding up better and, if you look at houses, it is the entry level that is outperforming.”
The relatively affordable outer south-west region rose 4.5 per cent over the quarter, to a median house price of $1.15 million. However, so did the eastern suburbs, up 7.4 per cent to $4.08 million.
Dr Shane Oliver, chief economist at AMP, said Sydney’s high property prices relative to incomes made the market particularly sensitive to interest-rate rises.
“While rate hikes don’t necessarily mean falling prices, if you go back historically, they have often been associated with weakness.”
Oliver said there was a “high probability” the Reserve Bank would raise rates again next week, after inflation data released on Wednesday showed an annual inflation rate of 4.6 per cent, well above the bank’s target range.
But he said the chances of the Sydney market entering a major downturn were slim.
“We still have a shortage of property in Sydney and, back in October, we saw the start-up of the Australian government’s expanded 5% Deposit Scheme for first-home buyers. Those things will continue to support prices.”
Separate figures showed Australia is behind on the federal government’s target to deliver 1.2 million new homes by June 2029 and likely to reach this by the September quarter 2030, the National Housing Supply and Affordability Council’s State of the Housing System 2026 report found.
Gross new housing supply is estimated at 980,000 dwellings over the five-year Housing Accord period – 42,000 more than forecast a year earlier, although the Middle East conflict makes the outlook uncertain.
Monique Campanella, 33, bought her first property, a one-bedroom apartment in Cronulla, in June 2024, and said she had watched interest-rate movements obsessively since.
“Buying my apartment stretched my budget to the limit – I certainly couldn’t afford to buy now.”
When interest rates began to fall in 2025, Campanella continued to repay her loan at the higher rate so she wouldn’t be caught out if they rose again.
“That has probably saved me,” she said.
Campanella, who works in public relations, tackles an 80-minute commute to the eastern suburbs and back each day but considers herself “lucky” to have secured an apartment when she did.
“I was able to live at home and save a lot, and then my parents gave me a little bit of an early inheritance to assist. If it hadn’t been for those factors, I’d still be renting.”
Thomas McGlynn, president of the Real Estate Institute of NSW, said price declines would be cold comfort for Sydneysiders still struggling to get a foot on the property ladder.
“Sydney has seen extraordinary growth in times when other capital cities have not, and that has meant Sydney has faced affordability issues for a longer period of time, and continues to do so.”
McGlynn said Sydney’s declining auction clearance rate since the start of February indicated a persistent lack of confidence from buyers that was now showing up in price data.
“On some weekends this year, the auction clearance rate has been at its lowest since the start of COVID.”
He doubted the price falls would be long term.
“I think people have literally just put their real-estate plans on hold for a while. The underlying demand is still there.”
