{"id":917639,"date":"2026-10-06T02:00:09","date_gmt":"2026-10-06T02:00:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/917639\/"},"modified":"2026-10-06T02:00:09","modified_gmt":"2026-10-06T02:00:09","slug":"australias-housing-market-is-definitely-in-a-downturn-but-lets-put-that-in-perspective-hal-pawson-for-the-conversation","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/917639\/","title":{"rendered":"Australia\u2019s housing market is definitely in a downturn \u2013 but let\u2019s put that in perspective | Hal Pawson for the Conversation"},"content":{"rendered":"

With national property values down by 5.2%<\/a> in September from their March peak, Australia\u2019s housing market is in a distinct downturn. This has sparked concerns voiced by the opposition leader, Angus Taylor, of a housing market \u201cin freefall<\/a>\u201d.<\/p>\n

Translated into dollar terms, using the Domain property price series<\/a>, the price of a typical home has dropped to about what it would have fetched one year ago.<\/p>\n

Let\u2019s put that price decline further into perspective.<\/p>\n

What\u2019s behind the change in sentiment?<\/p>\n

The fall in house prices is controversial partly because of the link to the property tax reforms<\/a> announced in the federal budget in May.<\/p>\n

Importantly, though, the current market down cycle was already well established in most parts of Australia before that, following the first official interest rate rise in February. Prices peaked in March and have now fallen for six straight months.<\/p>\n

Experts at Treasury estimated the tighter rules on negative gearing and capital gains tax unveiled in the budget would dampen prices only about 2%<\/a> over \u201ca couple of years\u201d. That\u2019s in line with earlier independent analysis<\/a>. We should assume those expert judgments are valid.<\/p>\n

Much of the long-term run-up in house prices was fuelled by generally declining interest rates<\/a> over three decades to 2020; each rate cut boosted buyers\u2019 borrowing capacity. That suggests interest rate hikes have been the key driver of this year\u2019s price drop.<\/p>\n

Prices have further to fall<\/p>\n

The Reserve Bank of Australia raised rates last week<\/a> for the fourth time this year, and financial markets expect at least one more rate rise in November or in 2027.<\/p>\n

That being the case, many experts anticipate further house price falls. For example, Cotality\u2019s research director, Tim Lawless<\/a>, believes an overall reduction of 10% to 15% is \u201ca fairly reasonable estimate\u201d.<\/p>\n

While the current downturn is Australia\u2019s fifth in only 20 years, a 15% price fall would \u2013 if realised \u2013 amount to a larger slide in values than in any previous downturn. Previous slumps<\/a> have generally seen peak-to-trough declines of 5% to 10%. By comparison, US national house prices<\/a> fell by more than 25% from 2006 to 2011.<\/p>\n

However, Australian price prospects need to be kept in perspective. According to one respected index<\/a>, median national property prices (houses and units combined) have climbed by 78% since 2020. If the current downturn does reach 15%, that will see prices reduced only to their level in early 2024.<\/p>\n

First home buyers and negative equity risks<\/p>\n

It\u2019s true this would expose some recent first home buyers to negative equity<\/a>, where the outstanding mortgage exceeds the home value.<\/p>\n

Those most at risk would be first home owners who bought their property in 2025 with only a small deposit \u2013 for example, under the federal government\u2019s 5% deposit scheme<\/a>. The RBA noted this risk<\/a> in last week\u2019s Financial Stability Review.<\/p>\n

However, most first home buyers have until recently needed a 20% downpayment. And the bulk of Australia\u2019s homes were already held by their current owners in 2024.<\/p>\n

The overwhelming majority of owner-occupiers and landlords would therefore continue to hold equity, even if prices fall 15%. Properties held since 2020 or earlier will be generally worth vastly more than their original price, even in that scenario.<\/p>\n

There\u2019s an upside for (some) first home buyers<\/p>\n

For aspiring first home buyers, of course, declining property prices are ostensibly a cause for celebration.<\/p>\n

Unfortunately for them, however, at least in our largest cities, the largest price falls have been at the top end of the market. Price declines have been smaller for entry-level homes.<\/p>\n

Cotality\u2019s latest analysis<\/a> shows the top quarter of Sydney properties have fallen by 5.3 percentage points more than the bottom quarter. For Melbourne the gap is 6.6 percentage points.<\/p>\n

Unfortunately, while rising interest rates depress prices, they also reduce the amount prospective buyers can borrow.<\/p>\n

For most first home buyers, therefore, slightly less expensive properties may be no more affordable<\/a>.<\/p>\n

But some of the biggest gainers from the current market downturn will be first home buyers substantially backed by the bank of mum and dad.<\/p>\n

If they can enter the market without a giant home loan, this lucky group will benefit from prices depressed by rising interest rates, while being insulated from mortgage cost pressures.<\/p>\n

Ripple effects<\/p>\n

As with previous downturns, the volume of sales is drying up as buyers hold back and wait for prices to recover. Westpac, for example, reports a 17% year-on-year drop in transactions<\/a>.<\/p>\n

In these market conditions, potential home buyers may also delay action in the hope of further price declines.<\/p>\n

The resulting hit to the real estate industry comes from the compounding effect of both reduced prices and fewer transactions. There are even reports of real-estate agents going door to door<\/a> in the hope of rustling up a sale.<\/p>\n

More broadly, the downturn will also squeeze tax revenues for state and territory governments, which have become heavily reliant on stamp duty.<\/p>\n

In New South Wales and Victoria<\/a>, for example, stamp duty accounted for 18.5\u201322.5% of all revenue sourced within the state in 2022\u201323. The proportion is likely to have risen since then amid the market boom.<\/p>\n

Calls for the states to trim spending are likely to grow as a result. It can only be hoped this will remind Australian governments of the case, overwhelmingly supported by economists, for replacing stamp duty with a broad-based land tax<\/a>. The ACT has already moved<\/a> down this path.<\/p>\n

This would result in a more reliable revenue stream for state and territory governments, as well as reducing the disincentive for homeowners to move house when their circumstances change.<\/p>\n

More importantly, though, by discouraging land speculation and land banking, moving to a broad-based land tax system would contribute to a more stable property market less susceptible to booms and busts.<\/p>\n

Hal Pawson is an emeritus professor of housing at UNSW. He is also a non-executive director of Community Housing Canberra and a part-time unpaid adviser to Senator David Pocock. This article was originally published on the Conversation<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"With national property values down by 5.2% in September from their March peak, Australia\u2019s housing market is in…\n","protected":false},"author":2,"featured_media":917640,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[64,63,44],"class_list":["post-917639","post","type-post","status-publish","format-standard","has-post-thumbnail","category-australia","tag-au","tag-australia","tag-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/917639","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=917639"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/917639\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/917640"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=917639"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=917639"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=917639"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}