Australia's housing market has fractured and the divide is now being felt in household budgets.

New data from Cotality shows national dwelling values rose 0.7 per cent in March and 2.1 per cent over the first quarter of 2026, but the headline figure masks a sharp split between the nation's biggest cities and its fastest-growing markets.

At one end, Sydney and Melbourne are losing momentum. At the other, Perth is surging, adding roughly $69,000 to the median home value in just three months.

"In dollar terms, the 7.3 per cent rise in Perth home values over the quarter has added approximately $69,000 to the median dwelling value," Mr Lawless said. "Clearly this pace of growth is unsustainable, but continues to be supported by low supply, with advertised stock levels tracking about 40 percent below the five-year average for this time of the year."

According to Tim Lawless, Cotality's research director, "The divergence comes down to a simple but powerful constraint: borrowing capacity.

"Since the end of November 2025, Melbourne values have retreated by -0.9 per cent and the Sydney market is down -0.4 per cent," he said, pointing to a sustained softening in the two largest capitals.

The shift has accelerated following the March rate decision by the Reserve Bank of Australia, which lifted the cash rate to 4.10 per cent.

While rate hikes have been a constant over the past two years, this latest move appears to have pushed many borrowers, particularly in Sydney and Melbourne, past a critical threshold.

With lenders assessing loans at rates closer to 9 per cent once buffers are applied, buyers in high-priced markets are increasingly unable to stretch into premium properties. That's having a direct impact on prices.

Sydney values slipped 0.1 per cent in March and 0.2 per cent over the quarter, while Melbourne fell 0.2 per cent for the month and 0.6 per cent across the first three months of the year.

At the same time, advertised listings are rising and auction clearance rates are easing-signs that buyers now have more leverage. "The softer trend in values coincides with falling auction clearance rates and a pickup in advertised supply, providing buyers with more choice and less urgency at the negotiation table," Mr Lawless said.

The difference lies in affordability. While Sydney's median dwelling value sits at around $1.29 million and Melbourne at $828,000, Perth's lower entry price points mean more buyers can still secure finance, even in a higher-rate environment.

Listings in Perth are about 40 per cent below the five-year average. The result is a market where demand remains strong, competition is intense and prices are still climbing.

Lower-priced properties are now outperforming more expensive homes across most markets, as buyers adjust to tighter borrowing limits. "Serviceability constraints are deflecting buyer demand towards the lower end of the market," Mr Lawless said.

In Sydney, upper-quartile dwelling values fell 1.8 per cent over the March quarter, while lower-quartile values rose by the same amount and that trend is playing out on the ground.

More affordable suburbs such as St Marys, Mount Druitt and Campbelltown are still recording double-digit annual growth, while premium markets are seeing demand fade.

In Melbourne, areas like Frankston and Sunbury are holding up, supported by first-home buyers and investors targeting lower entry points.The shift is also changing how buyers think about value.

In Perth, a budget around $1 million can still secure a modern four-bedroom home on a family-sized block within commuting distance of the CBD. In Sydney, the same budget is more likely to buy an older unit or a smaller house further from the city, often requiring renovation.

That disparity is increasingly driving buyers and investors to look beyond their home markets.While price growth is slowing in some areas, pressure is intensifying in the rental market. National rents rose 2.1 per cent over the quarter and 5.7 per cent annually, adding around $37 a week to the median rental cost. Vacancy rates remain critically low at 1.6 per cent nationally, with Adelaide the tightest market at just 0.9 per cent.

For many households, that means dedicating roughly a third of pre-tax income to rent, keeping cost-of-living pressures front of mind.

These conditions are also reshaping investor behaviour. With yields higher and entry costs lower, markets like Perth are attracting buyers from Sydney and Melbourne who are choosing to "rentvest" renting where they live while investing where they can afford.

At the same time, softer conditions in high-value markets are prompting some landlords to sell, further increasing supply in those cities.Despite the growing split, a sharp downturn still looks unlikely.

Demand is softening, sales volumes are down 1.9 per cent year-on-year, but tight supply and a resilient labour market are expected to underpin prices.

Instead, 2026 is shaping up as a year of uneven outcomes. Higher-end markets are likely to face continued pressure from borrowing constraints and weaker sentiment, while more affordable areas remain competitive. The result is a housing market no longer moving in sync, but one increasingly defined by where, and what, buyers can afford.

This article was originally published from view.com.au and appears with permission.

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$69,000 in 90 days: The Perth boom leaving Sydney and Melbourne behind