ANZ warns Sydney house prices could plunge 14.5pc in worst fall since 1983 as Labor Budget taxes bite

The ANZ bank is now forecasting that Sydney will suffer the sharpest fall in house prices since the early 1980s as Labor’s Budget taxes turn off investors in more affordable suburbs.

The big four bank has updated its forecasts to have a peak-to-trough fall of 14.5 per cent in Sydney, which would be more severe than the 13 per cent plunge from 2017 to 2019 following a banking regulator crackdown on interest-only loans.

Median house prices in Australia’s most expensive market peaked at $1.6 million in January and a more severe drop than the period before COVID would mark the most dramatic downturn since 1983 when the economy was in the grip of a year-long recession, based on Cotality data.

“We are forecasting the worst downturn in Sydney housing prices since 1983 and I think it’s really a combination of factors: affordability, something that’s been weighing on the Sydney market for a while,” ANZ economist Madeline Dunk told The Nightly.

“You couple that with restrictive interest rates — our view is that the RBA is done (hiking rates) but nonetheless, we do think the cash rate is slowing down the economy and clearly slowing down the housing market.”

Melbourne, another market where prices have been going backwards since February, was forecast to see a peak-to-trough decline of 12.8 per cent, even though its mid-point house price of $936,528 is among the more affordable.

The strongest-performing markets since the pandemic were also tipped to suffer with ANZ forecasting a 7.9 per cent peak-to-trough decline in Brisbane and an equivalent 9.8 per cent plunge in Adelaide as Perth values fell 5.2 per cent from this year’s peak.

“Adelaide should be more exposed, due to affordability constraints and supply and demand being more in balance than Perth and Brisbane,” ANZ said.

Capital city prices were forecast to fall by 4.3 per cent this year alone, following by a 3.4 per cent drop next year when the Reserve Bank is expected to cut rates, with middle-market values still hovering above $1.1m.

That 10.6 per cent decline from this year’s peak would be worse than the 8.2 per cent plunge from 2017 to 2019, meaning the worst downturn since the early 1980s.

Sydney and Melbourne property values started falling in February when the Reserve Bank began the first of three rate hikes that took the cash rate to 4.35 per cent and undid last year’s relief.

Prices in Brisbane, Adelaide and Perth started falling in June, a month after Labor’s fifth Budget since coming to power restricted negative gearing for investment properties exchanged after Budget night to brand new properties from July next year, as the 50 per cent capital gains tax discount was replaced with indexation and a minimum 30 per cent tax.

ANZ is expecting home prices to bottom out in mid-2027 before the Reserve Bank cuts interest rates again in August and November.

While more expensive suburbs of Sydney have traditionally suffered the biggest drop in house prices earlier in the downturn cycle, Ms Dunk is expecting house and unit prices in outer suburbs to suffer the biggest drops as Labor’s Budget taxes discouraged investors.

“One of the differences, potentially, this time around is just the investor story and the likely pullback in investor activity, investors aren’t generally in that top quartile,” she said.

“That is likely to hit the distribution of housing price outcomes — you’re likely to see properties that are more attractive to investors — so one-bedroom apartments for example — are probably going to under-perform relative to houses.

“Areas where investors are more dominant in the western suburbs, for houses for example, are likely to be more affected.”