Westpac warns of double-digit house price falls from another rate hike ahead of worst downturn since ‘80s

The head of Australia’s second biggest mortgage lender is downplaying the prospect of the worst housing market downturn since the early 1980s as big bank economists warn of unemployment soaring to COVID-era levels with another expected rate hike on Tuesday.

While a Melbourne Cup day rate rise is broadly expected, borrowers are now being warned to brace for even more pain next year, with inflation still expected to be a problem in 2027.

Westpac chief executive Anthony Miller has tried to minimise the effects of house price falls after new data showed the steepest quarterly plunges occurring in the previously strong markets of Brisbane and Perth and a double-digit annual decline in Sydney.

“The housing cycle has turned, although at this point the downturn is consistent with previous cycles,” he said on Monday delivering the full-year results.

Mr Miller suggested the talk of the biggest plunge in house prices was “overplayed” even with Westpac forecasting a 10.9 per cent fall nationally in the year to the end of March 2027, as a result of aggressive rate hikes and Labor’s Budget changes to negative gearing and capital gains tax concessions.

This kind of plunge, if realised, would still be easily the worst downturn in reliable records going back almost five decades.

This property bloodbath also would be worse than the 7.7 per cent downturn in 1982 and 1983 during a year-long recession and a 8.2 per cent fall between 2017 and 2019 following a banking regulator crackdown on interest-only loans.

The evidence is so far mixed with Australian capital city house prices plunging by 8.1 per cent since peaking in March, compared with 6.7 per cent nationally.

But in Sydney, prices have already plunged by 11.1 per cent since the start of this year, having peaked in February when the Reserve Bank began the first of its four hikes this year, that took the cash rate to a 15-year high of 4.6 per cent ahead of another expected increase on Melbourne Cup day that would take it to an 18-year high of 4.85 per cent.

Previously strong markets have had the biggest price drops since the start of July with Brisbane prices plunging by 6.2 per cent over the quarter while Perth prices have dived by 5.6 per cent during the same three-month horizon.

Adelaide, another strong market until recently, suffered a 3.9 per cent quarterly fall while Melbourne, the weakest market since the pandemic, is 9 per cent weaker than a year ago.

Mr Miler noted the proportion of borrowers needing hardship assistance had risen from 0.53 per cent to 0.60 per cent over the year, excluding acquired mortgage broking group RAMS, so they could avoid defaulting on their loan, classified as being 90 days behind on repayments.

“Come in if you need help, we will help,” he said.

“It is quite significant the number of people who come into the hardship program and exit within 90 days.”

NAB, Australia’s biggest business lender, has updated its forecasts to have the jobless rate reaching 5.4 per cent by the end of 2027 which would be the worst since April 2021 during COVID lockdowns.

“The adjustment continues to reflect slower labour demand growth being outpaced by population growth,” National Australia Bank’s head of Australian economics Gareth Spence said.

The Commonwealth Bank, Australia’s biggest home lender, is now expecting a 5.1 per cent jobless rate next year, up from September’s five-year high level of 4.7 per cent with its head of Australian economics Belinda Allen warning of another potential rate hike in 2027.

“A weaker economy should help inflation to get back to target over the coming 18 months but the structural pressures are still acute: continued weak productivity growth, a global AI‑induced capex (capital expenditure) boom putting pressure on interest rates and/or supply shocks are keeping inflation higher for longer,” she said.

“The RBA will be on edge, and the risk remains the need for further tightening of monetary policy in 2027.”