Australia's Home Prices Plummet Amid Inflation Fears

Australia's property market is experiencing its biggest downturn since the pandemic, with home prices falling for a fifth consecutive month in August. According to figures from Cotality, national home prices dropped by 0.9% in August compared to July, when they fell 1.2%. Sydney and Melbourne led the decline, with falls of 1.4% and 1.1%, respectively, leaving prices around 7% lower than their peaks.

The Reserve Bank of Australia (RBA) has warned that interest rates can still increase to combat stubborn inflation, which is putting upward pressure on borrowing costs. This could further exacerbate the decline in home prices, weighing on economic growth and household wealth. AMP's chief economist, Shane Oliver, expects a peak-to-trough home price fall of 10% this cycle and a turnaround in the second half of next year.

Olivier believes that the home price slump will have some impact on economic growth but is not significant enough yet to change the RBA's rate hike plans. The data released on Wednesday showed annual economic growth easing to 1.8% in the second quarter from 2.5% in the first quarter, a cooling effect engineered by the Reserve Bank.