Weaker Australian Property Market Could Ease Inflation Pressure

HSBC has published a note stating that a weaker property market in Australia could help ease inflation, supporting the Reserve Bank of Australia's (RBA) push to bring underlying inflation back to its 2-3% target band.

The bank forecasts a 13% peak-to-trough drop in home prices, implying about a 1% drag on GDP over time. According to HSBC's Paul Bloxham, this would slow the broader economy and cool growth.

HSBC found that when home values drop by 5%, household outlays typically ease by 0.8% across two years. This translates to roughly a 1% reduction in gross domestic product over time, backing up past cycles where slower housing turnover clipped about 0.4 percentage point from annual GDP growth.

RBA Governor Michele Bullock has overseen three hikes from February to May, and markets see another move this month to 4.6%. The central bank aims to pull underlying inflation to the 2.5% midpoint of its band for nearly five years, with that happening only in early 2028.