Property market shifts from 'urgency to caution' as buyers step back

Joshua Goodfellow has been searching for two months for his first home, which he will use as an investment property.

But a trio of interest rate hikes, Labor's tax reforms and global economic and geopolitical uncertainty has forced the 18-year-old to press pause on house hunting.

And the reason is simple: to wait for the dust to settle and let everything work through the market.

"The CGT and negative gearing changes announced on budget night were a disappointment to say the least," Mr Goodfellow said.

"Negative gearing was a key way that I could have made an investment property work for me.

"But the abolishment of the policy has made me reconsider if it's the right move at this stage."

Mr Goodfellow, a small model train business owner from New South Wales, plans to stay out of the market for at least three months to let the economic climate settle.

He is not the only one.

In the first weekend after the May 12 federal budget was handed down, fewer than half the homes listed for auction changed hands, with the final clearance rate dropping to 43.1 per cent, according to Cotality data.

Westpac analysts have forecast a 34 per cent decline in new investor activity, a 20 per cent slide in real estate transaction volumes and stalling home price growth across all capital cities this year.

Cotality data already shows capital city sales are down from 32,863 in May 2025 to 27,342 in May 2026, a fall of almost 17 per cent.

Ray White chief economist Nerida Conisbee says the real estate market has seized up, with existing sellers hit by a buyer's strike.

"Buyer demand has weakened materially compared with this time last year," Ms Conisbee said.

"The market has shifted from urgency to caution.

"Buyers are taking longer, there are few active bidders, open-home attendance has softened and some purchasers are clearly waiting to see what happens with rates, the budget changes and broader economic conditions."

Uncertainty weighs on buyer confidence

According to Loan Market data, investor mortgage applications fell 23 per cent at the end of May, while first home-buyer applications were down 12 per cent.

On the ground, some agents are already seeing the shift.

Rebecca Cuderman, principal of NGU Real Estate's Logan office, said buyers have become wary, with fewer people attending inspections and more waiting to see if prices fall further.

She said her office was now seeing about two to three groups per inspection on average, compared with about seven to eight groups prior to the latest rate rise and budget changes.

Rebecca Cuderman says the market is seeing a pause in buyer confidence.  ( Supplied )

"Buyers are pulling back, slower to make decisions and more price-sensitive than they were a few weeks ago," Ms Cuderman said.

"Those who were already stretched are now reassessing borrowing capacity and whether they should wait.

"Even though there are still first home buyers in the market, they've become nervous, with many asking more questions around repayments, future rate rises and government grants."

Melbourne-based Loan Market mortgage broker Jake Mold agrees that tax changes, along with interest rate rises have affected market sentiment.

"However, as competition from investors cools, we may see first home buyers coming back to the market, particularly for existing properties," Mr Mold said.

Investors experiencing 'stage fright'

It is no surprise the changes to housing investment tax settings are weighing on investor demand.

Industry estimates vary, but the removal of negative gearing and the replacement of the 50 per cent capital gains tax discount with inflation indexing are expected to reduce the borrowing capacity of investors by between 10 and 20 per cent.

Ms Cuderman said this has forced them to press pause to understand what the changes mean for them long term and pivot their strategy on the types of property they are looking to purchase.

Auction clearance rates have decreased since the May federal budget was handed down. ( ABC News: Ian Cutmore )

Cotality's research director Tim Lawless even said the impact of the budget would likely result in a "fairly sharp pullback in investment activity".

But Ms Conisbee said investor activity had already been declining because of higher interest rates.

"The budget has now added a second shock of stage fright by creating uncertainty over tax treatment and future returns."

But is now really a good time to buy?

For buyers who are financially ready, now could be a good opportunity, Ms Cuderman said.

"When sentiment weakens, buyers generally have more negotiating power," she said.

"There is less competition, sellers become more realistic, and buyers may have a better chance of securing a property without the same level of pressure we saw during stronger periods."

What is in store for the rest of 2026?

The housing market downturn is likely to last while three things remain unsolved: interest rates, the final shape of the budget tax changes and global economic uncertainty.

"My base ca…