EDITORIAL: Confidence in Australian housing is heading towards a cliff

It may sound dramatic, but the numbers make it difficult to conclude anything other than this: housing confidence is heading towards a cliff.

Mortgage applications from first-homebuyers have plunged by an annual pace of more than 20 per cent amid a double-digit monthly plunge in new home sales, new figures show.

First-homebuyer applications dived by an annual pace of 20.1 per cent nationally in August — the most dramatic decline among this group since the Reserve Bank of Australia’s last interest rate hiking cycle in 2022, new data from credit check firm Equifax showed.

The drop in first-homebuyer applications was much steeper than the overall 14.1 per cent decline for all home loans.

Equifax said younger Australians continued to be the most impacted by current market conditions and cost of living constraints.

The drop in first-homebuyer applications has worsened since the Albanese Government’s Budget ended negative gearing from July next year for established homes exchanged after May 12, and replaced the 50 per cent capital gains tax discount with indexation and a minimum 30 per cent tax.

The changes were designed in the name of so-called “intergenerational equity” — the idea being that housing investors would pull back and first-homebuyers would get a better chance at breaking into the market.

But, combined with the three Reserve Bank of Australia interest rate rises this year and the impact of higher prices flowing from the Middle East crisis, the policy has helped send prospective buyers to the sidelines.

In another indication of the market softness, figures from the Housing Industry Association show new home sales fell by 10 per cent in August for a quarterly plunge of 19.3 per cent and an annual decline of 7.7 per cent.

“The new home market cannot absorb further interest rate increases on top of the tax increases announced in this year’s Federal Budget,” the HIA’s chief economist Tim Reardon said.

“This is a tangible and significant deterioration in market conditions.

“The tax increases announced in the Federal Budget have weakened market confidence at the same time that three interest rate increases have reduced household borrowing capacity and increased mortgage repayments,” Mr Reardon said.

Victoria had the steepest quarterly decline of 27 per cent followed by Queensland on 20.2 per cent, NSW on 17.5 per cent as South Australia saw a 10.8 per cent slide and Western Australia suffered an 8.2 per cent plunge.

But there is likely to be worse to come in the shape of another interest rate rise by Melbourne Cup day in early November as the RBA continues to struggle against stubbornly high inflation.

One more interest rate rise would take the cash rate to a 15-year high of 4.6 per cent.

This all comes amid already falling house prices and widespread predictions of more falls to come.

Falling home values make householders feel poorer and lead to them tightening their belts in what is known as the wealth effect.

That could be a further drag on economic growth.

That cliff looks ever closer.

Clearly there will be ramifications for the Albanese Government, which has played its part in the cycle of gloom.

Responsibility for the editorial comment is taken by Editor-in-Chief Christopher Dore