Homeownership has been a one-way bet since the mid-90s. Is it finally coming to an end?
Australia's housing market downturn isn't close to done yet, according to Shane Oliver (pictured), chief economist and head of investment strategy at AMP, who reckons last week's data confirming the housing downturn deepening as auctions stall is just the latest sign of a longer slide still playing out.
Oliver pointed to July's Cotality figures – home prices down 0.7% for the month, the steepest monthly drop since December 2022 – as proof the slowdown is broadening, and it's no longer just Sydney and Melbourne doing the heavy lifting on the downside.
Brisbane, Adelaide and even Perth, the last of the boomtown markets still eking out gains, have now tipped into the red too.
Why prices are falling
Oliver outlined a combination of three things working against the market at once.
Interest rates have gone up three times this year, taking borrowing costs back to where they were at their last cyclical peak. On top of that, the federal government's tax changes – winding back negative gearing and taxing capital gains more heavily for investors – are making property a much less attractive place to park money, at least for now. And with fuel prices climbing again and consumer confidence subdued, buyers simply aren't feeling flush enough to stretch for a purchase.
Still, Oliver isn't calling this a crash. "It's still early days in the downturn," he said, but he doesn't see prices collapsing the way some fear. His view is that a chronic shortage of housing, cautious sellers who aren't being forced to sell, and the boosted first-home buyer deposit scheme should all help cushion the fall.
How far could prices fall?
Oliver's base case is for national average prices to end up around 7% lower from peak to trough – not dramatic by historical standards, but enough to be felt.
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Sydney is expected to bear the brunt, with an eventual fall of around 11%, of which about half has already happened. He expects the market to keep softening into next year before bottoming out around the middle of 2027, roughly in line with when he expects the Reserve Bank of Australia to start cutting rates again.
Cheaper properties and units are tipped to hold up noticeably better than houses, partly because they didn't run up as hard on the way up, and partly because first-home buyers using the low-deposit scheme are propping up demand at the entry level.
That mirrors what's been playing out elsewhere in the market, including in ongoing broker reporting on whether investor demand is recovering or still stuck in the doldrums since the tax changes took effect, changes that themselves cleared their final parliamentary hurdle earlier this year.
A longer-term shift, not just a blip
Perhaps the more interesting question is whether Australia's three-decade property boom – the one that's made home ownership feel like a one-way bet since the mid-1990s – might be running out of road altogether.
The shift toward higher-for-longer interest rates and less generous tax treatment for investors are all headwinds that weren't there during the boom years.
If the housing shortage closes up faster than expected, Oliver reckons that the long upswing could be at, or close to, an end.
For brokers and their clients, the takeaway is fairly simple: don't expect a bounce back any time soon, but don't expect a crash either, unless unemployment rises sharply enough to force a wave of distressed selling.
Oliver's advice amounts to patience – for both buyers waiting for better prices and sellers hoping the market turns before they need to move.
Chalmers urges 'sense of perspective'
When grilled on the latest house price data, Labor treasurer Jim Chalmers called on the public to maintain "a sense of perspective".
He sought to attribute the fall to interest rate increases and higher fuel costs, not just Labor’s controversial tax changes.
"It’s not uncommon to see prices come off in this fashion," Chalmers said. "If you look over the past couple of decades, even as we’ve had over that period a period of extraordinary price growth, we’ve still had in that two-decade period, I think at least seven times where prices have come off.
“They came off in 2022 at the beginning of the rate hiking cycle; they came off quite substantially between 2017 and 2019 under our predecessors, and so it’s not uncommon to see prices come off the way that they are now.”
Investment in housing "is a long-term investment", he added. "People don’t make investments in housing from day to day or week to week, month to month, and so from time to time you will see movements in prices like these.”
