Home prices: Property purchases down as interest rate shocks hit, warning demand will fall further

Aspiring home owners are pulling back on property purchases as the cost of living continues to climb, with warning demand is set to soften even further.

Adding to concern, the Federal Government’s Budget changes to negative gearing threatens to slash the value of Australian’s homes further.

Loan commitments for Australian properties fell by 6.2 per cent in the March quarter, according to real estate analysis from Cotality and Australian Bureau of Statistics figures.

Investor lending in the ACT declined by almost 17 per cent last quarter, compared with a national average of 5.3 per cent.NSW fell by 6.3 per cent for investor lending, while South Australia and Tasmania experienced growth of 4.7 and 8.8 per cent respectively.

Despite this, investors accounted for more than 40 per cent of lending value across the nation.

Much of the activity was concentrated in capital cities.

The Reserve Bank raised the cash rate twice in the March quarter to 4.1 per cent, decreasing buyer confidence.

At the bank’s latest meeting in May, the rate increased again to 4.35 per cent.

The Cotality report said the third hike could exacerbate the downturn in the sector.

“Demand is likely to soften further, as the full impact of the interest rate tightening, particularly the hike in May, has not yet been felt. There is the possibility,” the report said.

“At the national level, the housing market is already on the cusp of a downturn, with dwelling values already contracting in Sydney and Melbourne while growth is slowing in the mid-tier capitals.”

First home buyer lending also went down in all jurisdictions except the ACT, and was expected to decline further.

Nationally, the amount of first home buyer lending went back by 4.3 per cent for the quarter, with NSW declining by 4.1 per cent and Victoria by 4.5 per cent for the same period.

The biggest decline was experienced in the Northern Territory, which fell by 20.6 per cent.

“Victoria continues to lead first home buyer lending activity as a share of the total, with Melbourne’s relative affordability advantage over other cities, as well as tax policy settings that discourage investors, contributing to this trend,” the report said.

Consumer confidence has plunged since the start of the war in Iran, given rising material costs and stock market fluctuations.

Reflecting the same trend as other markets, property values in most capital cities rose in the March quarter, the Cotality data showed.

Perth led with a 6.8 per cent rise, followed by Brisbane at 4.7 per cent. Sydney and Melbourne were the only cities to see a downturn in values, at 0.9 per cent and 1.5 per cent, respectively.

Concern about changes to negative gearing and the capital gains tax discount in the federal budget are also likely to make buyers more hesitant.

Property prices tipped to fall up to 6pc 2027

Damien Boey, a Portfolio Strategist at Wilson Asset Management told The Nightly that the Budget is set to damage an already softening housing market.

“Pretty much every property indicator is looking weak right now,” he said.

“Clearance rates are very low and loan approvals are falling. That’s before you consider the negative impact from tax changes on the property market and credit growth.

“Our view is property investors will also be hit and buyers subside.”

HSBC’s Chief Economist for Australia & New Zealand, Paul Bloxham, now expects national house prices to fall between 3 and 6 per cent in 2027 as higher interest rates lower the capacity of borrowers.

Australia & New Zealand Bank sees house price growth of 2.8 per cent this year, easing to 2.1 per cent in 2027 at a level below forecasts for price inflation.

“If you do have a fall in house prices, cyclical slowdown in the economy, and fiscal restraint from the Budget, it’s not a surprise that people are thinking about peak rates in Australia,” said Mr Boey.