SYDNEY - Australian home prices suffered their steepest fall in three-and-a-half years in June as a record housing boom succumbed to higher borrowing costs, while a tax clampdown on investment properties rattled buyers.Figures from Cotality showed national prices fell 0.4 per cent in June from May, the biggest monthly drop since December 2022, though they were still up 7.3 per cent in 2026. Downward revisions to past months also now suggest prices peaked in March and were down 0.7 per cent in the second quarter.Sydney and Melbourne led the monthly decline with a 1.2 per cent drop and a 1 per cent fall, respectively. The mid-sized capital cities also recorded a sharp slowdown in their growth, with Adelaide flatlining, Brisbane up 0.3 per cent and Perth 0.7 per cent higher.The slowdown came after a jump of more than 30 per cent in national property prices over the past five years, which has defied Covid-19 lockdowns and a surge in borrowing costs thanks to persistently tight supply and robust population growth.“Even before interest rates rose by seventy-five basis points, we were seeing affordability hurdles weighing on buyer demand,” said Cotality’s research director Tim Lawless.“Higher cost-of-living pressures, deeply pessimistic sentiment and a further dampening of demand via property taxation changes announced in the federal budget are all contributing to weaker housing conditions.”Data from Equifax showed mortgage demand dropped 6.6 per cent in the five months to May from a year earlier, compared with a 0.9 per cent decline for the January-April period. Enquiry levels from first home buyers tumbled a whopping 9.1 per cent.Auction clearance rates in capital cities fell to 47.4 per cent last week, the lowest reading since April 2020, when the pandemic lockdowns paralysed the economy. Capital city home sales in the June quarter were 16.2 per cent lower than in the same period in 2025.The Reserve Bank of Australia noted on June 30 that the housing market had eased and housing credit growth looked set to slow, part of the expected impact as its three rate hikes from February flowed through the economy. However, it did note the risks of a potentially material weakening in the housing market, which could inhibit consumption.A growing number of economists now expect prices could drop in 2026, with falls more pronounced in Sydney and Melbourne, although still tight supply and an expected pull-back in investor sales due to the fact the proposed tax changes would not be applied retroactively are expected to limit downsides.Markets are also wagering that interest rates in Australia have likely peaked, with just 12 basis points of tightening expected by the end of 2026. Rate cuts are also back on the menu, with one rate cut fully priced by the end of 2027. REUTERS