By James Glynn

SYDNEY--Australian house values recorded their largest monthly retreat since late 2022 in June, with the market responding to higher interest rates and tax changes announced in May that make property investment less appealing.

Property research firm Cotality said Wednessday that its national home value index dropped 0.4% in June, with the decline led by Sydney and Melbourne, the country's two largest property markets.

Sydney home values fell 1.2% over the month, while Melbourne followed closely with a 1.0% decline, the data showed.

The weakness in the housing market has gathered momentum since the federal Labor government announced changes to capital gains tax arrangements around investment properties in May. The changes aim to cool off property price growth which has roared for decades, freezing many out from home ownership.

The weakness in the house price data is fueling fears of an extended slump in the market as economists speak openly about the end of a so-called "super cycle" in house prices.

Mid-sized capitals recorded a sharp slowdown in their rate of growth in June. Adelaide values were unchanged over the month, while Brisbane and Perth saw modest month-on-month rises of 0.3% and 0.7%, respectively, the data showed.

The report details a "material slowdown" relative to the pace of gains through the first quarter, when Brisbane values rose at an average monthly pace of 1.9% and Perth at 2.5%, Cotality said.

As the market rapidly decelerates, the HVI has seen recent months revise lower. The June update now indicates the national measure peaked in March, with values down 0.7% through the June quarter, it added.

"The downward revision reflects a market that is changing rapidly," said Cotality's research director Tim Lawless.

A weaker housing market can be seen across other metrics, including auction clearance rates, estimates of home sales and the number of properties listed for sale.

The combined capital cities auction clearance rate has held below 50% since the last week of May, dropping to the low 40% range from late June.

Capital city home sales, over the three months to June, are estimated to be 16.2% lower than at the same time last year and 14.5% below the five-year average for this time of year, Cotality said.

-Write to James Glynn at james.glynn@wsj.com