Australia’s Housing Crash Could Become the Worst in 40 Years

Australia’s housing downturn is shaping up to be the deepest in four decades, with economists warning that the market may be only one-third of the way through its decline.

National property values dropped 1.1 per cent in September, extending the fall from the March peak to 5.2 per cent, according to data released by Cotality on Thursday.

The median dwelling value fell to $899,236, leaving it broadly in line with its level 12 months earlier.

Brisbane recorded the sharpest monthly decline among the major cities, with values falling 1.5 per cent, ahead of Sydney’s 1.4 per cent drop.

Sydney’s home values are now 8.6 per cent below their February peak.

The market has fallen further at this stage than during the comparable point of the 2022/23 downturn, Cotality research director Tim Lawless said.

“This is just a little bit more rapid than what we’re seeing through that previous period of decline, which was one of the largest corrections on record,” he told AAP.

“But it was really short and sharp. I think this one’s quite sharp, clearly, but I’m not sure how short it’s going to be.”

Some economists, including HSBC’s Paul Bloxham, expect prices to fall 13 per cent from their peak to their trough.

AMP chief economist Shane Oliver has forecast a decline of as much as 15 per cent, with the downturn potentially continuing until the middle of 2027.

Higher interest rates are exerting greater pressure on prices, while Labor’s tax changes affecting property investors are also having a clear impact.

“Once the dust finally settles, maybe around the middle of next year, then fresh home buyers will probably be in a situation where housing is more affordable and there’s less competition with investors,” Mr Lawless said.

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“So on that framework … I think the budget would have done what it set out to achieve.”

Treasurer Jim Chalmers said property prices had begun falling before the May budget, but argued the changes would help create more affordable opportunities for first-home buyers.

“Young people and first-home buyers have been locked out of the housing market for decades, since the mistake was made with the tax changes a quarter of a century ago,” he told reporters on Thursday.

As interest rates rise, the property downturn is spreading across more areas of the market as well as becoming more severe.

Cotality reported that 97 per cent of capital city suburbs had fallen in value over the three months to the end of September.

The lower quartile of the market initially showed greater resilience, but increasingly few areas are managing to resist the broader downturn.

But Labor’s expansion of its five per cent deposit scheme was still buttressing demand among first-home buyers at the lower end of the market.

Since it was uncapped one year ago to the day, more than 102,000 first-home buyers had made use of the scheme, Prime Minister Anthony Albanese said.

‘This scheme is helping Australians, particularly young Australians, get their foot in the door and achieve the dream of home ownership,’ he said.

The tax changes were predicted to push rents up due to a reduction in rental stock.

However, inflation data released by the Australian Bureau of Statistics on Wednesday showed rents have stabilised, rising 3.6 per cent in the 12 months to August – a rate of growth that has been unchanged since May.

A rebound in the rental vacancy rate from a record low 1.5 per cent to two per cent – due to larger household sizes and lower migration levels – was helping take some heat out of the market, Mr Lawless said.