Australian housing market stalls in May

Home values were flat in May, with the weakness led by Sydney and Melbourne. (ABC News: Liz Pickering)

Australia's housing market stalled in May, with national home values flat after months of slowing growth.

The weakness was led by Sydney and Melbourne, where values fell 0.9 per cent and 0.8 per cent respectively, according to Cotality data.

While the Reserve Bank is widely expected to hold interest rates steady at its June 15-16 meeting, buyers remain highly sensitive to any signs that borrowing costs will stay higher for longer.

Australia's housing market has continued to lose momentum, with national home values flatlining in May as higher interest rates, weak confidence and proposed property tax changes weigh on demand.

According to new Cotality data, Sydney and Melbourne led the weakness, with dwelling values falling 0.9 per cent and 0.8 per cent respectively in May. Values also slipped in Canberra, down 0.2 per cent.

Cotality research director Tim Lawless said the broad trend was one of the housing market losing steam, driven by several headwinds hitting at once.

"Generally, there's a single catalyst that typically drives housing price inflections, whereas at the moment we've really got four headwinds that are quite clear.

"You've got affordability challenges, which have been existing for some time, but then on top of that, you've got 75 basis points of interest rate hikes, a global oil crisis that's seen confidence fall off a cliff, and now you've got disincentives for investment as the budget's handed down."

Tim Lawless says the housing market is losing steam after being hit by a mix of pressures at once. (ABC News: Jessica Ross)

The slowdown is also showing up in sales activity. Nationally, the estimated number of home sales over the past three months was tracking 2.2 per cent lower than a year ago and 4.1 per cent below the five-year average.

"I think that's a real reflection of the fact that fewer people are participating in the market, partly because of the high cost of debt, but also because confidence is so low," Mr Lawless said.

"As the market moves into a weaker cycle, there will be more people who simply don't want to buy during a downturn for fear of catching a falling knife."

Beneath the flat headline result, conditions across the country were mixed.

Perth and Darwin recorded the strongest monthly gains, both up 1.5 per cent, lifting median values to just over $1.05 million and $634,368 respectively.

Brisbane, Adelaide and Hobart also rose, but at a slower pace, each up less than 1 per cent.

Mr Lawless said mid-sized ca