But while the Middle East conflict will take some steam out of price growth, Australia's chronic undersupply of housing continues to support property values across the country.
Cotality's home value index climbed 0.7 per cent in March, with a median property at a record $933,137, the data firm reported on Wednesday.
It follows a rise of 0.8 per cent in February and takes the annual growth rate to 9.9 per cent.
But divergences are widening between the larger capitals of Sydney and Melbourne, which fell 0.1 per cent and 0.2 per cent respectively in March, and the mid-sized markets, where growth continues apace.
Since the end of November, Melbourne values are down 0.9 per cent while the Sydney market is 0.4 per cent lower, Cotality research director Tim Lawless said.
Home price growth accelerated to 2.5 per cent in Perth, which became the third market to crack the seven-figure club with a median dwelling value of $1,017,698.
Mid-tier markets have outperformed Melbourne and Sydney for a number of years, but the gulf was widening due to the scale of the supply deficit in Perth, Adelaide and Brisbane.
"Sydney and Melbourne are now seeing listings above average, so there's more choice," Mr Lawless told AAP.
"There's less urgency for buyers. They can negotiate.
"Whereas in Perth, listings are still about 40 per cent below average."
With up to three more interest rate rises predicted in 2026, prospective buyers would be feeling a sense of urgency to get into the market despite low confidence and vacancy rates.
"So for a lot of buyers or renters, they're probably between a rock and a hard place," Mr Lawless said.
Markets will inevitably slow as a result of the Middle East conflict.
Higher inflation will eat away at household disposable incomes and higher interest rates will diminish borrowing capacity, softening demand.
But the supply side of the equation was also under pressure.
Rising fuel prices and the shortages of construction materials such as PVC pipes would push up building costs and make projects less viable.
"When you have this ongoing undersupply of new housing, it generally implies a housing downturn may not be as deep as what it might have been otherwise," Mr Lawless said.
Data released by the Australian Bureau of Statistics on Wednesday showed building approvals bounced back to a four-and-a-half year high of 19,022 in February - a 29.7 per cent increase on the month.
Commonwealth Bank economist Lucinda Jerogin said building approvals data was notoriously volatile but trend data showed a steady growth in momentum since early 2024.
Non‑residential approvals also surged, in large part due to a boom in data centre investment, with the value of "other commercial buildings" consents up more than 250 per cent in the year to February, Ms Jerogin said.
Housing Minister Clare O'Neil said conflict in the Middle East was creating a tougher environment to build a new home, but the dwelling approvals data showed Australia was coming to the crisis with stronger foundations.
"We'll keep working closely with the construction industry to keep projects moving and keep building the homes Australians need even in the face of these global economic challenges," she said.
Within housing markets, conditions were also diverging, with the lower quartile outpacing more expensive properties.
As borrowing capacity falls, buyers are pushed towards less expensive homes where they compete with investors and first-home buyers taking advantage of the government's expanded five per cent deposit guarantee scheme, Mr Lawless said.
For those unable to get a foot on the property ladder, the rental market offers no respite.
Rental affordability is already at record lows and set to become even worse.
Rents grew 5.7 per cent in the past 12 months, the fastest annual rate of growth since October 2024.
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