Australian Housing Market Faces Steepest Downturn in 20 Years
Australia's housing market is experiencing a significant downturn, with national property values dropping by 5.2% in September from their peak in March. This decline has sparked concerns about a housing market "in freefall," as voiced by Opposition Leader Angus Taylor. The price of a typical home has reverted to what it was a year ago, highlighting the extent of the downturn. The fall in house prices is partly linked to property tax reforms announced in the federal budget in May, but the downward cycle was already underway following the first interest rate rise in February.
Experts at Treasury estimated that the tax reforms would dampen prices by around 2% over a couple of years, suggesting that interest rate hikes have been the key driver of this year's price drop. The Reserve Bank of Australia raised rates for the fourth time this year, and further rate hikes are expected, which many experts anticipate will lead to further house price falls. Tim Lawless, research director at Cotality, believes a 10-15% reduction in overall house prices is "a fairly reasonable estimate." This would amount to a larger slide in values than in any previous downturn, with previous slumps generally seeing peak-to-trough declines of 5-10%.
For first home buyers, the downturn presents a mixed picture. While declining property prices could be seen as a positive, the largest price falls have been at the top end of the market, with smaller declines for entry-level homes. Rising interest rates also reduce the amount prospective buyers can borrow, making slightly less expensive properties no more affordable. However, first home buyers substantially backed by the "bank of mum and dad" may benefit from depressed prices while being insulated from mortgage cost pressures.
The downturn is also having ripple effects on the industry and government revenues. The volume of sales is drying up, and state governments reliant on stamp duty are facing a squeeze on tax revenues. This has led to calls for replacing stamp duty with a broad-based land tax, which could contribute to a more stable property market.