Australian home prices fall for sixth straight month, set for worst downturn in 30 years

Australian home prices plummeted for a sixth consecutive month in September, signaling the country's worst downturn in three decades, according to data released on Thursday. The decline was driven by a sharp drop in transaction volumes and an upcoming interest rate hike, which is expected to further weaken the market.

According to property data firm Cotality, national home prices dropped 1.1% in September from August, with prices 5.2% below their peak and unchanged from a year ago. Sydney saw a more significant decline of 1.4%, now nearly 9% below its February peak, marking the most severe contraction since the 2022-2023 downturn. Melbourne's prices fell 0.7%, extending losses to over 7% below their peak.

Prices in Brisbane, Adelaide, and Perth also fell by more than 1%, eroding gains from the past five years, which ranged between 50% to 70%. Transaction volumes contracted, with sales for the past three months down 19% year-over-year, indicating a lack of buyer confidence and financial capability. Inventories have risen as a result, according to Tim Lawless, research director at Cotality.

Many prospective buyers currently lack the confidence or financial capacity to purchase homes, Lawless noted. The Reserve Bank of Australia (RBA) has highlighted the housing market as a downside risk but has already raised interest rates for the fourth time this year to a 15-year high of 4.6% to combat persistent inflation. The RBA has warned it remains ready to raise rates further if necessary.

A sustained slowdown in housing turnover has wider economic implications, given the sector's extensive ties to various industries, including real estate services, tradespeople, and construction. Housing credit growth has also begun to slow. Most economists anticipate a peak-to-trough decline of 10% for house prices, which would be the most significant downturn in three decades.

HSBC forecasts a 13% drop if rates rise a fifth time, while AMP expects national average property prices to experience a top-to-bottom fall of 10-15%, with Sydney, Brisbane, and Adelaide likely to see the deepest declines.

Prices are not expected to hit a bottom until the June quarter of the next year and should start a modest recovery in 2027-2028 as the RBA begins to shift towards rate cuts, according to AMP Chief Economist Shane Oliver.