AMP now tipping record 15 per cent Australian property market plunge which would be worst on record

Australian home prices could plunge by 15 per cent as the prospect of a fifth interest rate hike this year exacerbates potentially the worst downturn on record - conservatively wiping $140,000 off property values across the country.

Such a catastrophe for homeowners would be significantly worse than the downturns of the early 1980s during a year-long recession and a pre-COVID slump following a crackdown on interest-only loans.

Under AMP’s worst-case scenario, national home values would plunge by $139,971 but in Sydney, house prices would plummet by $241,058, leaving recent borrowers battling mortgage stress with the disaster of severe negative equity where they owed their bank more than their home was worth.

Despite that dire prediction, Prime Minister Anthony Albanese was unrepentant and defended Labor’s Budget tax changes that weren’t taken to last year’s election.

“We want young Australians to own their own home,” he told reporters on Thursday.

“To have the same opportunity that previous generations have had. That’s why we put in place the changes.”

Sydney’s median house and unit value have now plunged by 8.6 per cent to $1.2 million since peaking in February, when the Reserve Bank began the first of four rate hikes this year, new Cotality data for September showed.

But the contagion is spreading to other markets with prices in Perth falling by 6 per cent to $975,022 since an April peak, despite still being Australia’s strongest market during the past year.

Brisbane prices are down 5.4 per cent to $1.049m since peaking in May, when Labor’s Budget scrapped negative gearing for established properties from next year and ended generous capital gains tax concessions.

Adelaide prices since that time have dipped by 2.9 per cent to $928,560.

Melbourne, Australia’s weakest property market, is 7.5 per cent weaker than its March 2022 peak reached before a previous Reserve Bank hiking cycle, making $780,550 the mid-point price.

National property prices have dropped by 5.2 per cent since March to $899,236 but in the capital cities, where prices are generally higher, they have plummeted by 6.4 per cent since that peak to $973,525.

The Reserve Bank’s decision on Tuesday to raise rates to a 15-year high of 4.6 per cent will only further weigh down the housing market, Cotality’s research director Tim Lawless said.

“With household debt at high levels, borrowers are far more sensitive to interest rates compared with 15 years ago when interest rates were previously this high,” he said.

“Borrowers are not only facing higher mortgage costs, but also an extended period of elevated living expenses and negative real income growth.

“Together, these pressures are narrowing the pool of buyers able to qualify for a mortgage and reducing the amount they can afford to pay.”

AMP chief economist and head of investment strategy Shane Oliver is forecasting a 10 to 15 per cent drop in Australian home values by late 2027, as a result of the Reserve Bank’s four interest rate rises so far this year and Labor’s Budget tax changes.

“The Australian housing market is still likely to weaken significantly further as higher mortgage rates, the removal of most property tax concessions, record poor affordability and poor confidence continue to impact at a time of a rising risk of distressed selling,” he said.

“Rate hikes are usually associated with falling property prices or slower price growth. This is because they cut how much buyers can borrow, can boost distressed sales and hit home buyer confidence.

“The drip feed of higher rates will also put more pressure on existing homeowners already suffering from mortgage stress which when combined with rising levels of unemployment risks a rise in distressed home sales and defaults.”

A 15 per cent peak-to-trough decline in Australian house and unit prices would be worse than the 7.7 per cent decline in 1982 and 1983 during a drought and a year-long recession and an 8.2 per cent decline from 2017 to 2019 after the banking regulator cracked down on interest-only loans.

Such a plunge would see national home prices plunge from a March peak of $933,137 to $793,166 - wiping off $139,971.

In Sydney, Australia’s most expensive capital city market, house prices would plunge from $1.607m when they peaked in February to $1.366m - marking a decline of $241,058.

Westpac and ANZ are predicting a fifth hike for 2026 on November 3 which would take the RBA cash rate to an 18-year high of 4.85 per cent Melbourne Cup day.