It’s officially Australia’s biggest house price downturn
Last week, the RBA hiked interest rates for the fifth time this year, taking the official cash rate to an 18-year high of 4.85%. The increase was another brutal blow for Australian mortgage holders, who were already facing the highest mortgage rates in the advanced world before the back-to-back 25 bp hikes delivered by the The post It’s officially Australia’s biggest house price downturn appeared…
Australia has officially experienced its most significant downturn in home prices in over four decades, according to recent reports. The Reserve Bank of Australia (RBA) raised interest rates for the fifth consecutive time this year, reaching an all-time high of 4.85%. This sharp increase in borrowing costs has left mortgage holders facing higher repayment amounts. For an average $736,000 loan, repayments have risen by approximately $600 per month, or over $7,000 annually since the first rate hike in February.
The combination of the RBA's rate hikes and the federal government's changes to negative gearing and capital gains tax (CGT) in the May budget has accelerated the housing market downturn. Overall, home prices in the five major capital cities have dropped by 8.6% since early April, with Sydney leading the decline at 10.5%, followed by Perth (-9.5%) and Brisbane (-8.4%). Over the past quarter, property values have decreased by 4.7% across the five major capitals, with Perth and Brisbane leading the decline at 5.9% each.
The price correction is expected to continue into 2027, with the RBA's latest rate hike exacerbating the situation. Major banks, including CBA and AMP, have downgraded their forecasts for dwelling prices, anticipating a 15% decline in values across the major capitals. CBA predicts a 16% drop in Sydney's property prices, while both Brisbane and Perth are expected to fall by 18% from their peak.
AMP chief economist, Shane Oliver, declared the 30-year housing supercycle to be over, citing a perfect storm of higher interest rates, the removal of negative gearing and CGT concessions, record low affordability, and potential lower immigration levels.
The auction market reflects the weakness in the housing market, with a final clearance rate below 50% reported in 22 of the last 24 weeks. First home buyers, who often utilize the government's 5% deposit scheme, are particularly vulnerable to the rise in interest rates and the sharp drop in home values. Many now face the prospect of extreme mortgage stress and negative equity, where their homes are worth less than their mortgages.
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