Australian property bloodbath warning as ex-Treasury economist predicts biggest slump in 40 years
Australia’s red-hot housing market could be heading for a sharp reality check as economists warn Australia is on the brink of its biggest property correction in 40 years.
Australia’s red-hot housing market could be heading for a sharp reality check as economists warn the nation is on the brink of its biggest property correction in 40 years.
Former Treasury economist Leith van Onselen said a toxic mix of rising interest rates, worsening affordability, slowing economic conditions and weakening buyer confidence was creating a “perfect storm” for home values nationwide.
The warning comes after the Reserve Bank last week lifted the cash rate another 0.25 percentage points to 4.35 per cent — the third increase this year — and flagged inflation remained a major concern.
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By continuing you agree to our Terms and Privacy Policy.“We’ve just had three consecutive rate hikes, we’ve got rates back up where they were at last year’s peak before the Reserve Bank of Australia started cutting in February last year,” Mr van Onselen said.
“And the markets are still tipping at least one more rate hike.
“The RBA was incredibly hawkish in their commentary on Tuesday’s rate hike ... they were very concerned about inflation.”
Recent data already points to a slowing market.
Cotality’s daily dwelling values index across the five major capitals rose just 0.03 per cent over the past 28 days, with Sydney and Melbourne recording falls of 0.7 per cent while growth in Brisbane slowed sharply.
Cotality research director Tim Lawless warned Australia was already “on the cusp of a housing downturn”.
“Sydney and Melbourne are already five months into the early phases of decline, while growth is slowing across the mid-sized capitals,” he said.
“Listings are picking up as demand softens, interest rates are rising while affordability and serviceability pressures are biting.”
Mr van Onselen said Australia was likely to follow comparable economies such as New Zealand and Canada, where housing prices have already fallen by about 20 per cent.
Cotality notes Australia’s combined capital city housing market has experienced 10 downturns over the past 40 years in which values fell for at least three months.
The sharpest decline came during the 2017-19 downturn when values fell 8.2 per cent amid tighter lending conditions.
Property market expert Catherine Cashmore said the latest rate hike had already rattled buyers and sellers.
“I’ve been hearing a lot of news on the ground from people that are selling in Perth who are saying that the market is softening there,” she said.
“I heard a similar report from Brisbane from someone who’s just dropped the price of their home that they’re selling there, and it all feels a little bit dismal.”
Ms Cashmore warned that Australia was not just heading for a housing downturn but potentially a recession.
“We’re heading into a full blown recession, where we will see property prices drop, but we’ll also see businesses go out of business, panic in the stock market,” she said.
“We would be looking at a general panic and definitely heading into a recessionary environment.”
AMP senior economist Shane Oliver said housing momentum was already fading rapidly.
“Prices fell in Sydney and Melbourne and while the boom time, mid-sized cities of Brisbane, Adelaide and Perth remained strong, they are seeing slowing growth too,” he said.
“The slowdown reflects a combination of rate hikes, buyer uncertainty associated with the Iran war and its impact, and increasing uncertainty around the tax treatment of property going into the budget, along with poor affordability.”
Mr Oliver forecast house price growth would slump from 8.6 per cent in 2025 to just 3 per cent in 2026, warning values could slide outright if rates stay higher for longer.
Domain chief economist Nicola Powell said Sydney and Melbourne were proving the most vulnerable.
“Sydney and Melbourne are showing the clearest signs of strain, with price growth stalling or reversing as affordability pressures bite,” she said.
“Sydney house prices stalled over the March quarter, edging down 0.04 per cent to $1.79 million and ending a three-year run of uninterrupted growth.
“Melbourne house prices declined 0.6 per cent to $1.08 million — the first fall in 1.5 years — ending a five-quarter run of growth.”
