Property: Australian home prices suffer biggest monthly fall since December 2022

Anthony Albanese has hailed the biggest monthly drop in home prices in almost four years as good for first homebuyers amid fears Australia is facing one of its worst housing market downturns in more than four decades.

The Prime Minister, who co-owns an investment property on the NSW Central Coast with his new wife, Jodie Haydon, said a slowdown would mean less competition from investors, following Labor’s May Budget changes to negative gearing and capital gains tax concessions.

“The great news is that this Saturday, like last Saturday, first homebuyers would have rocked up to auctions and not be competing with investors who want to negatively gear their property and have taxpayers backing in those investments. So, a level playing field,” he told ABC News Breakfast on Wednesday.

“There’ll be an increase in the value of homes, but it will be slightly lower than it would have been without these measures.”

But since March, after the Reserve Bank raised interest rates for the second time this year, combined capital city house prices have plunged by 1.3 per cent, led by Sydney and Melbourne, new Cotality data for June showed.

Cotality, Australia’s leading real estate data group, is warning of an 8 per cent peak-to-trough plunge in Australian home values by the middle of next year, which would mark one of just three sustained downturns since the early 1980s.

National Australia Bank is forecasting a 7 per cent plunge in Melbourne home prices this year as Sydney values slid by 6 per cent.

This has called into question Treasury modelling suggesting a 2 per cent slowdown in property values over several years as a result of Labor’s tax changes.

Labor’s plan to build more homes is also in trouble with building approvals falling by another 1.1 per cent in May, for the third straight month.

In a clash on Seven’s Sunrise program, Liberal frontbencher Michaelia Cash accused Labor Housing Minister Clare O’Neil of causing a downturn that would ultimately hurt renters as investors pulled out of the market.

“The big picture is you’re crashing the market,” Senator Cash said.

“You’ve got to start living in the real world and take responsibility for the real-world impact of your policies.

“You have hurt first homebuyers, you have hurt renters, but worse than that, you have stalled confidence in the market.”

Shadow treasurer Tim Wilson rejected Mr Albanese’s suggestion a housing market slowdown would help first homebuyers.

“Instead, we have a Government that’s trying to eat into the savings of the middle class, destroying the Australian dream and trying to crash the Australian economy. I mean, it’s just disgraceful,” he said.

A sustained market fall could see house prices suffer an 8 per cent decline from this year’s peak, which would be comparable to the downturns of 2017 to 2019, sparked by a banking regulator crackdown on interest-only loans, and 1982 and 1983 during a prolonged recession, Cotality Australia’s head of research Gerard Burg said.

“There’s no reason it couldn’t,” he told The Nightly. “An 8 per cent (downturn) is not out of the realms of possibility.”

Mr Burg isn’t expecting a recovery until mid-2027 when the Reserve Bank hints at rate cuts, which would mean a prolonged, 15-month downturn in home values that would be even worse than the early 1990s recession.

“That boost to confidence that things are getting better and if not actual rate cuts, a signal that rate cuts are imminent,” he said.

“It might be mid-2027 before we start to see those factors kind of coalesce and provide that sort of boost - a downturn might last until that sort of period.”

Jo Vadillo, an investment strategist and founder of Advocate Property Services, said interest from potential customers began to fall in March following media reports of Budget tax changes.

“I started to notice then that there was just greater sense of fear and doom,” she said.

Sydney and Melbourne are now suffering quarterly and annual declines in both house and apartment values, following three Reserve Bank interest rates rises in 2026 and Labor’s Budget changes coming into effect in July 2027 that will restrict negative gearing to brand new homes and replace the 50 per cent capital gains tax concession with a 30 per cent tax on inflation-adjusted increases.

Across Australia, home values last month fell by 0.4 per cent, back to $937,722, marking the steepest monthly decline since December 2022 when the RBA was also raising interest rates, even with an expanded 5 per cent deposit scheme for first homebuyers.

“I tend to think rate rises are the biggest impact because it hits the broadest category of buyers,” Mr Burg said.

“There’s almost certainly fewer investors, that’s little doubt about that but I do tend to think that first homebuyers, they have generally the lowest level of deposit and are most exposed when it comes to borrowing capacity.”

In Sydney, the PM’s home city, the median house price slumped by 1.5 per cent in June to $1.556 million to be 3.8 per cent weaker compared with March, and down 0.1 per cent over the year.

Melbourne, now Australia’s second most affordable State capital city market, saw its mid-point house price fall by 1.3 per cent in June and by 3.3 per cent over the quarter to finish the financial year 1.2 per cent weaker.

The Victorian capital’s median house price of $948,482 is even more affordable than the still strong markets of Brisbane ($1.225 million), Adelaide ($1.009 million) and Perth ($1.093 million).

Even in a soaring market, Adelaide house values were flat in June.

Canberra house prices dived by 0.7 per cent last month and 1.5 per cent over the quarter to $1.036 million.

Regional markets, however, are doing a lot better with house prices outside the capital cities rising by 1.1 per cent during the past three months to $788,777.

Perth was still the strongest performing market in June, with values increasing by 0.7 per cent but this is a sharp slowdown from December last year when there was a monthly increase of 1.9 per cent.

Despite the gloom, affordable suburbs are doing well with Wyong on the NSW Central Coast seeing a 9 per cent jump during the past year to $966,059 as prices at Frankston North in Melbourne rose 7.1 per cent to $706,465, even in markets that have been broadly falling since the end of last year.

Buyers’ agent Daniel Walsh, the founder of Your Property Your Wealth, said investors wanting less debt were increasingly turning away from the $1 million-plus markets to suburbs with median prices in the $600,000 to $1 million range, which meant prospective landlords would be competing with first homebuyers.

“As affordability becomes an issue in the future and we bring in more immigration, it’s getting harder to find affordable shelter,” he told The Nightly.

“Investors are gravitating towards the cheap end of market because they know that in a time like this, flight towards affordability is a flight towards safety for their asset values.

“Affordable is growing the most which is backfiring on the Government because the Government’s saying we want to make affordable properties more affordable but you’re actually making everyone compete for affordable.”

Labor’s National Housing Accord plan to build 1.2 million well-located homes over the five years to June 2029 is also looking shaky with just 202,621 residential houses and units approved in the year to May, new Australian Bureau of Statistics data showed.

This is still well below the 240,000 needed a year, on average, to be on target with the new figures released two days after Master Builders Australia forecast the Accord completion rate would fall 204,000 short.

“As the Accord marks its second anniversary, it is becoming clearer that the current policy settings are not doing enough,” Master Builders Australia chief executive Denita Wawn said on Wednesday.

Building approvals were down 1.1 per cent in May, marking the third consecutive monthly fall.

This was due to a massive fall in new apartments and townhouses, with private sector dwelling approvals excluding houses down 10.4 per cent to 6034 in May.

Construction companies were the most likely to be insolvent during the last financial year with 3286 going into external administration for the first time during a housing shortage, Australian Securities and Investments Commission data showed.