Australia enters ninth housing downturn, but will it last long?

The Australian property market has entered its ninth downturn, but the history books offer hope for hard-pressed vendors.

New analysis released today by Domain forecasts the country’s two biggest property markets would be hit hardest, with Sydney house prices falling 7 per cent and Melbourne by 8 per cent in the new financial year.

While would-be buyers are exposed to borrowing constraints in these markets, prices in more affordable Brisbane, Perth and Adelaide are expected to keep growing.

House values have been taking a caning during past months due to three consecutive interest rates, changes to capital gains tax and negative gearing, as well as the impact to consumer confidence of the US-Iran war.

The market is now sliding into its ninth slump in 30 years, leaving vendors asking should they hold off selling, while buyers are wondering if it’s the best time to purchase.

A look at what happened in previous housing downturns offers the answers.

It shows recovery followed every of the past eight, and when the uptick happened it not only reversed losses but propelled prices to new heights.

Typically, downturns have typically been short and contained, averaging a 2.9 per cent decline over about eight months. By contrast, upswings have been longer and significantly stronger, delivering 32 per cent growth on average for nearly three years.

Despite today’s gloomy outlook, the scale of the price falls remain modest in historical context.

For home values across the combined capitals to slump to their last low in March 2023, they’d need to drop by about 22 per cent, the research found.

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Domain chief residential economist Nicola Powell says interest rate, buyers’ borrowing capacity and market confidence are likely to decide when the new downturn ends.

“Downturns can feel sharp in real time, but historically they’ve been short and shallow, and have not unwound the gains that preceded them,” she said.

“When the interest rate cycle turns, demand that has been sitting on the sidelines tends to return quickly, bringing the next phase of growth forward.”

House values facing $100,000 drop, bank predicts

Major banks are all predicting housing prices to fall around the country in a national slowing of the property market.

The federal budget’s changes to negative gearing and capital gains tax, along with still-high interest rates, have already helped push clearances down, with Cotality yesterday reporting a clearance rate of 47 per cent in capital cities last week.

That’s the lowest it’s been since the COVID-19 pandemic.

Now, major banks are predicting house prices will follow the plunge, with some forecasting a $100,000 drop on house values in Sydney and Melbourne.

NAB predicts a 6 per cent drop in Sydney and a 7 per cent drop in Melbourne for the rest of the year, as part of a national 2 per cent drop.

According to some modelling, this could knock just over $100,000 off the median value of a Sydney house of about $1.75 million.

AMP and the Commonwealth Bank are both predicting the housing market to fall five per cent nationally into early 2027.

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ANZ is predicting a five per cent fall through to next year’s end.

AMP deputy chief economist Diana Mousina said the fall in prices was not the sign of a weakened economy, but a corrective to runaway housing values.

“The expected slowing in home prices is not enough in itself to generate a serious economic downturn in Australia,” she said.

“Lower wealth growth will limit household spending but this is also helpful to get inflation to be a bit lower. It could make the RBA’s job a little easier.”