Australian Housing Market Faces Uncharted Territory

The Australian housing market has been declining for several months, with August's fall being the sharpest since December 2022. The national median dwelling price has dropped by 4% from its peak, and auction clearances have declined to around 50%.

While many experts argue that house prices in Australia never decline over the longer-term, some analysts suggest that this may be changing. They point out that when measured in real terms, such as inflation-adjusted Australian dollars or American dollars, the market price is actually below its peak set four years ago.

The Labor government's policy options to support the housing market are limited. Interest rates have increased, and the cash rate stands at 4.35% after three hikes this year. The RBA governor warned of sticky inflation risks skewed to the upside, and no major commercial bank forecasts a rate cut before 2027.

Household debt has risen to nearly 185% of income, close to the highest figure in a developed economy. The government's Help to Buy scheme, which uncapped deposit guarantees and offered student debt relief, provided a short-term boost but may exacerbate outcomes on the downside.