Australia's Housing Market Hits Worst Slowdown Since Pandemic

Australia's housing market has entered its worst slowdown since the pandemic as rising borrowing costs and tax break reversals dampen home prices. The Reserve Bank of Australia (RBA) raised interest rates three times between February and May to combat inflation, which was fueled by the Iran war. RBA governor Michele Bullock said that if inflation doesn't come down, the central bank will have difficult decisions to make.

The total value of Australia's 11.5 million homes surged 87% this decade to an unprecedented A$12.8 trillion. However, the market has cooled significantly since then. Home prices in Sydney and Melbourne are down nearly 5% so far this year, with fewer people attending open houses and tumbling auction clearance rates.

The sharp reversal in tax breaks has also added pressure on the housing market. The government overhaul of investor tax breaks curbed negative gearing on established homes and scrapped a generous tax discount for investors. Mortgage inquiry levels dropped 14% in June from a year earlier, marking a sharp reversal from January's growth of nearly 11%, according to data from credit analytics firm Equifax.

Younger buyers with limited savings are driving the pullback, as higher borrowing costs make properties less affordable despite the decline in housing prices. 'Even though the market drops and there are more accommodative government policies, a lot of first home buyers are hesitant to commit to a long-term liability,' said Liza Cheong, a mortgage broker in Sydney.