Australia home prices may fall up to 8% after surging for years

[SINGAPORE] Australian home prices could fall as much as 8 per cent from their peaks, as higher interest rates, weak consumer sentiment and tax changes take some steam out of one of the world’s most expensive real estate markets.

“The national housing market appears headed for a downturn,” property consultancy Cotality said in a near-term outlook on Thursday (Jun 25), adding that historical examples show peak-to-trough declines in the range of 3 to 8 per cent.

That possible pullback would come after years of price gains. Housing values in Australia have risen more than 34 per cent in the past five years and almost 76 per cent in the past 10 years, according to data from Cotality.

The Reserve Bank of Australia has hiked interest rates three times this year to fight inflation pressures.

Economists expect those higher borrowing costs, together with recent tax changes in Prime Minister Anthony Albanese’s budget, may finally remove some of the frothiness in the housing market.

Albanese’s government last month unveiled plans to curb tax breaks that have encouraged property investments, which have been blamed for pushing up home prices beyond reach for many Australians. The government is now aiming to rebalance incentives and make housing more accessible for younger buyers.

SEE ALSO

Australia’s central bank still has work to do to reduce inflation, deputy governor says

Australia consumer prices slip in May, but core inflation tops forecasts

Australia’s tax overhaul chills nation’s long love affair with property

Australia probes private credit lenders, warns on valuations

More

Asean Intelligence

Get insights into businesses across South-east Asia

Get the free report

Those changes are expected to pass parliament this week.

“We see periods of very significant house price growth and then we see the market make a correction, and that has what we are seeing at the moment,” Housing Minister Clare O’Neil said on Wednesday. The tax changes in the recent budget are helping first-home buyers get into the market, she said.

The national resale profitability rate had reached its highest in more than two decades in the March quarter, before the tax changes, according to Cotality. BLOOMBERG