Australia’s housing market collapse is only going to get worse, one of the nation’s top economists warned as clearance rates and property prices dive.
The national auction clearance rate stayed below 50 per cent for the third week in a row as three interest rate rises and recent tax changes announcements hindered buyer sentiment.
Property prices fell 0.4 per cent in May, while Sydney and Melbourne experienced 3.2 and 2.6 per cent falls respectively in the June quarter.
HSBC’s chief economist Paul Bloxham said the downturn would continue as buyers avoided entering a market where property values were sinking.
“This is just the beginning,” Mr Bloxham said in a statement.
“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.
“As we see it, first home buyers and other owner-occupiers are unlikely to want to try to ‘catch a falling knife’.”
The market slump comes as Labor will restrict negative gearing to new builds and properties purchased before budget night from July 1, 2027.
Labor is also dumping the 50 per cent capital gains tax discount and replacing it with an inflation-adjusted model with a minimum 30 per cent tax rate.
Australia’s property market has also fallen as the Reserve Bank of Australia was forced to lift the cash rate 75 basis points while inflation remained elevated.
Mr Bloxham noted that prices could fall about eight per cent by the end of 2027 as there remains no sign of a “circuit breaker” in the market.
“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,” he said.
“We see national prices falling in H2 2026 and by 2-6 per cent over 2027 – implying a correction of up to eight per cent over that period.
“The pace of decline in the June figures suggest the risks to this view look tilted to the downside too. Hold onto your hats.”
Property data provider Cotality revealed last week’s preliminary auction clearance rate was just 49.8 per cent.
This is well below the decade average of 65 per cent.
The house price slump could also cause a slowdown in the wider economy as the RBA last week warned the decline could inhibit growth in consumption.
AMP’s chief economist Shane Oliver said there was “concern” consumption could fall as consumer spending typically falls 0.1 per cent for every one per cent decline in wealth.
“Property is about two-thirds of total (household) wealth in Australia. The remaining bits are things like super and shares and so on,” Mr Oliver told SkyNews.com.au.
“So a seven per cent fall in property prices, all things being equal, would knock about 4.6 per cent off wealth.
“When you multiply that out, is about a 0.5 per cent hit to consumer spending potentially. So it’s not enough to cause a recession but it would contribute to a slowdown in the economy.”
While property prices in Sydney and Melbourne have fallen, alongside a 1.3 per cent drop in Canberra during the June quarter, other major cities have seen their growth contract.
The Brisbane and Perth markets grew 1.3 per cent and two per cent respectively in the June quarter.
This is significantly below the respective 5.1 and 7.3 per cent growth rates the Queensland and Western Australia capitals recorded in the March quarter.