One surprising generation could be in “dire straits” as house prices are set to fall and preliminary auction clearance rates dive.

Auction clearance rates dived to the lowest levels since the pandemic last week as three rate hikes and Labor’s new tax changes rattle buyers.

Cotality revealed the preliminary clearance rate fell to just 47 per cent across Australia’s capital cities, marking the first time since April 2020 the rate was under 50 per cent.

Sky News Business Editor Ross Greenwood warned a decline in preliminary auction clearance rates will cause house prices to dive and poses a massive problem for the economy.

“There’s been a significant decline in the number of auctions going to the market which are successful,” Greenwood said on AM Agenda.

“And so that shows you that house prices right now are falling. There is no doubt about that around Australia.

“That is not a good thing for the confidence of Australians, the spending of Australians or indeed the Australian economy.”

Greenwood also warned that declining house prices will threaten younger Australians who were encouraged to purchase a home through Labor’s five per cent deposit scheme.

“The people who have been effectively subsidised by the government, (who have been) told, ‘We’ll be your insurer, we will be your mortgage insurer. If you go broke, we will basically sort the bank out’,” Greenwood said.

“Those people who were encouraged to buy with five per cent – really encouraged vigorously – if they lose a job, they’re in dire straits.

“That is just not the way to run your housing market. You can’t manipulate housing markets if you’re in government.”

Property prices outside Sydney and Melbourne have skyrocketed over the past year.

However, prices are forecast to decline by up to 10 per cent due to the tax changes and rate hikes, according to Morgan Stanley’s chief economist Chris Read.

“The previous model of high leverage, cash flow losses, and large expected capital gains is meaningfully challenged,” Mr Read said in a statement.

Speaking on the clearance rate slump, Cotality economist Annabelle Mezieres revealed that 23.6 per cent of scheduled auctions were withdrawn while 48 per cent of properties sold before going under the hammer.

“This could mean that vendors are unwilling to test the market under auction conditions,” Ms Mezieres said in a statement.

REA Group senior economic analyst Megan Lieu said the decline in clearance rates reflected the “growing mismatch” between buyer and seller expectations.

“While buyers are recalibrating what they’re willing to pay, sellers may remain anchored to pricing set under stronger market conditions,” Ms Lieu told SkyNews.com.au.

“This suggests that the market is transitioning to a period of weaker momentum.”

The downturn follows the cash rate lifting 0.75 per cent since the start of 2026 while Labor plans to roll back negative gearing and slash the 50 per cent capital gains tax discount.

About 166 auctions were withdrawn in Sydney last week while only 225 out of 645 total auctions were cleared.

This marked a 17.5 per cent decline in clearance rates in the Harbour City compared to the previous week.

Melbourne recorded 910 auctions with a 50.6 per cent preliminary clearance rate, down about 6.7 per cent from last week.

Meanwhile, about one third of the 142 auctions held in Brisbane cleared while about 40 per cent of the 91 homes auctioned in Adelaide had early success.

The nation’s capital hosted 65 auctions and reported a 47.1 per cent preliminary result while Perth had just a 40 per cent clearance rate across its 16 auctions.