Australia’s housing market is facing the risk of its deepest downturn in decades as higher interest rates, deteriorating affordability and weaker buyer demand continue to push property values lower.
National home values have fallen for six consecutive months, with the decline broadening across most capital cities as the Reserve Bank of Australia’s tightening cycle flows through to mortgage borrowers.
Economists have warned that prices could fall substantially further if borrowing costs remain elevated.
A decline approaching 15% from the market peak would place the current downturn among Australia’s most severe property corrections in around 40 years.
Higher rates squeeze buyers
The RBA has lifted the cash rate to 4.60%, reducing household borrowing capacity and increasing repayments for existing mortgage holders.
Sydney and Brisbane have been among the weaker markets, while transaction volumes have also fallen as prospective buyers struggle to meet tougher lending conditions.
At the same time, homes are taking longer to sell and total advertised stock is building, giving buyers greater negotiating power.
The consequences could extend beyond property prices.
Housing wealth plays an important role in Australian household confidence and spending, meaning a prolonged decline could encourage consumers to save more and spend less.
That would add another headwind for an economy already showing signs of softer household consumption and a cooling labour market.
With interest rates now at a 15-year high, the next phase of the housing downturn will depend heavily on inflation and whether the RBA needs to tighten monetary policy further.
