Australia's Housing Market Braces for Record-Breaking Price Drops

Australia's housing market is facing its biggest decline on record, according to forecasts from major banks and economists. The largest capital city house price decline on record was between October 2017 and May 2019, when values dropped by 8.2%. However, current data suggests that values have already declined by 4.6% across the combined capital cities, with a 3.7% decline recorded over the August quarter.

The Reserve Bank of Australia (RBA) is widely expected to raise interest rates again, with financial markets assigning a 72% probability of a rate hike at its September meeting and a second rise early next year. This has led several banks to downgrade their home-price forecasts, including CBA, which predicts a peak-to-trough decline in dwelling values of 10% across the five major capital cities.

However, this forecast assumes only one further rate hike, followed by two cuts in May and August 2027. If the RBA delivers two hikes or fails to deliver the expected cuts next year, then price falls would be steeper. HSBC chief economist Paul Bloxham has also downgraded his forecast, expecting a 13% peak-to-trough fall.

Experts point out that the current decline is part of a necessary correction in the housing market, which had become unaffordable to middle-class Australians. Higher interest rates, changes to negative gearing and capital gains tax, anti-money laundering rules for real estate, budget austerity, and lower immigration are all contributing factors.