‘Catch a falling knife’: Economist’s grim warning for first homebuyers
Updated . First published at
Falling house prices aren’t just putting investors off, they’re keeping the first-home buyers the government hoped to entice out of the market as well, one major bank has said.
HSBC chief economist Paul Bloxham said the recent price falls were “just the beginning”.
The cooling housing market has only just begun, one economist has warned. Getty
“The recent big shifts in tax policy concerning investment properties, as well as the RBA’s earlier three rate hikes, have rapidly sapped investor demand from the market,” he said.
“As we see it, first home buyers and other owner-occupiers are unlikely to want to try to ‘catch a falling knife’.”
Prime Minister Anthony Albanese has previously claimed the 2026 budget’s tax reforms had seen first-home buyers bidding at auctions unattended by investors in recent weeks.
Figures from Cotality show the traditionally weak winter market is softer still on the back of those changes and the RBA’s rate hikes, with several consecutive weeks of below 50 per cent clearance rates.
“With no rate cuts expected anytime soon (there is still some risk of another hike), we expect no near-term circuit breaker, which means the housing price correction is likely to continue for some time yet,” Bloxham said.
He predicted a fall of up to eight per cent by the end of 2027.
“The pace of decline in the June figures suggest the risks to this view look tilted to the downside too,” Bloxham said.
“Hold onto your hats.”
ANZ and NAB have predicted falls of about 10 per cent in Sydney and Melbourne in that timeframe.
But Bloxham said the falling prices were expected to spread to other markets now as well.
“So far, housing prices have only declined in the major capital cities, Sydney and Melbourne, but the mid-tier cities are seeing a loss of momentum in housing price growth,” he said.
“Our take is that a significant driver of recent momentum in the mid-tier cities - including Perth, Brisbane and Adelaide - has been investor demand.”
He said Perth was an example of an overheated market facing rapid cooling, with housing prices up 24 per cent in the past year.
But investors made up 40 per cent of the new approvals in 2025, up from 15 per cent in 2024.
“Investor demand is now drying up quickly,” he said.
“This is weakening the Sydney and Melbourne markets already and we expect it to be a key driver of housing price falls in the smaller cities too - including Perth, Brisbane and Adelaide - in the coming quarters.”
But, he said, a cooling housing market could have a positive knock-on effect for inflation and thereby interest rates.
The RBA's interest rate hikes have helped cool the market. iStock
“At some level, the cooling housing market will be helpful for the RBA if it slows down consumer spending, as this will also help to take some more pressure off inflation, which is too high,” Bloxham said.
“Through this mechanism, the cooling housing market adds to the case for the RBA, if forward-looking in its approach, to remain on hold, rather than hike further.”
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