And the phenomenon is expected to deepen further, with stubborn inflation putting upward pressure on the Trans-Tasman country’s interest rates.
Latest figures from property consultant Cotality showed national home prices falling 0.9% in August from July, when they dropped 1.2%. Sydney and Melbourne again led the monthly decline with figures of 1.4% and 1.1%, leaving prices down about 7% from their peaks.
Analysts see red in the falling house prices, as the development threatens to erode household wealth and curb consumer spending just as Australia’s economy faces the risk of a sharper slowdown.
“We are probably only about 35% of the way through the slump both in terms of the percentage fall and months,” said Shane Oliver, chief economist at AMP, while interacting with Reuters.
Oliver is predicting a peak-to-trough home price fall of 10% in the current cycle, followed by a turnaround in the second half of 2027.
“The home price slump will weigh on economic growth but is not significant enough yet to change the direction of the RBA rate moves from up to down given the inflation problem,” he said.
A sustained slump in housing turnover would have wide implications for the Australian economy given the sector’s massive links to industries ranging from real estate services to tradespeople and construction.
Growth in the housing credit, a profit generator for Australian banks, has already started to slow.
For UBS analysts said, it is increasingly likely house prices would drop towards 10% in this cycle, which would be among the worst industry downturns in the Trans-Tasman country, leaving the central bank facing a policy dilemma amid the high inflation.
“Overall, UBS still expects the RBA to raise the cash rate by another 25 bps by November 26. The more likely timing remains in Nov-26, but the risk of an ‘early hike’ at the next meeting in September-26 is now material,” they noted.
The Anthony Albanese government’s tax changes added more misery into the industry downfall, as the new policy has effectively cooled investor demand.
The RBA, on the other hand, has raised the cash rate three times this year to 4.35%, and markets are fully pricing in another hike this year, given the stubborn nature of the inflation.
“Nearly all capital cities recorded a fall for August, with the heat finally coming out of boom markets like Brisbane and Perth, which fell 1.0% and 0.8%, respectively, after double-digit gains this year,” Cotality said.
Tim Lawless, Cotality’s research director, said the softer trend in values was underpinned by weaker transaction activity, adding that sales for the past three months were down 15.5% from a year earlier.
“Longer selling times, larger vendor discounting, and persistently low auction clearance rates all point to a buyer’s market, yet buyers are lacking the confidence to transact currently,” he concluded.