Every growth cycle eventually loses pace, and Perth’s remarkable run in dwelling values is no exception.

According to Cotality’s latest Home Value Index, Perth dwelling values rose 0.7 per cent over June and two per cent over the quarter, and while that pace has stepped down from the 2.5 per cent average monthly growth recorded through the March quarter, it was still the strongest quarterly result of any capital city.

In other states, the market has clearly turned. Sydney values fell 1.2 per cent in June and Melbourne dropped one per cent, contributing to the sharpest month-on-month decline in the national index since December 2022.

Perth, by comparison, is still recording positive monthly growth even as that broader downturn deepens.

Slowing from a position of strength is a different proposition to falling from an already weakening one.

Slower growth can mean demand is genuinely fading or it can simply mean buyers have hit the limit of what they can afford to pay, even while the underlying shortfall between population growth and new housing supply remains unresolved.

A better test of where Perth sits in its cycle, however, is what is happening in the rental market underneath it.

Cotality’s latest Quarterly Rental Review had Perth’s vacancy rate at just 1.3 per cent, among the tightest of any capital, while Perth rents were still climbing at 7.8 per cent annually.

Rents do not keep climbing at that pace in a market where tenants have other options and underlying demand is easing.

Cycles driven by speculative heat tend to stop the moment sentiment turns. Cycles driven by a genuine, unaddressed shortfall of housing supply behave differently.

They can decelerate in pace without the underlying pressure disappearing because the shortfall itself remains unresolved.

Whether Perth’s slowdown is temporary or the start of something more significant will show up in the rental market well before it shows up in next month’s growth figure.

Vacancy rates and rent growth respond to shifts in underlying demand faster than sale prices do, since they reflect what people are actually willing to pay to secure a home right now, not what they expect an asset to be worth later.

A slower rate of price growth on its own is likely to be just that – a pause in pace, rather than a change in direction.