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Herron Todd White Chief Economist Cameron Kusher joined ABC NewsRadio to discuss Australia’s first national housing market downturn in more than three years, outlining the economic factors driving the shift and what buyers, investors and lenders can expect in the months ahead.
Speaking following the latest property market data, Cameron said the current decline should be viewed in context after an extraordinary period of growth across many Australian markets.
“Over the past five years we’ve seen phenomenal growth in property values, particularly in Brisbane, Adelaide and Perth, where prices have almost doubled since the pandemic,” Cameron said.
While most capital cities recorded a decline over the quarter, Cameron noted the correction remains modest, with capital city house prices down 1.4% and regional markets down just 0.1%.
Why is the market softening?
Cameron said a combination of economic factors is contributing to weaker market conditions.
Higher interest rates continue to limit borrowing capacity, while persistent inflation and ongoing cost-of-living pressures are weighing on household budgets. Added to this, recent Federal Government changes to negative gearing and capital gains tax concessions have created uncertainty among property investors.
“Investors account for around 40% of the property market, so any policy changes affecting investment decisions are likely to influence overall market activity,” he said.
While investors can still access tax concessions by purchasing newly built properties, Cameron explained that higher prices for new homes may reduce the number of investors entering the market.
Opportunities for owner-occupiers
The softer market may create improved opportunities for owner-occupiers, particularly first home buyers, who often compete directly with investors.
However, Cameron cautioned that affordability remains a significant challenge despite the recent easing in prices.
“There’s likely to be less competition from investors, but housing is still very expensive. Many buyers may choose to wait to see whether more affordable opportunities emerge over the coming months.”
He also noted that housing downturns are often accompanied by fewer properties being listed for sale, potentially limiting buyer choice.
Outlook: More weakness likely before recovery
Looking ahead, Cameron believes Australia is in the early stages of the current housing market downturn, with further price declines likely over the coming quarters.
Historically, housing markets have stabilised once the Reserve Bank begins reducing interest rates. However, Cameron said persistent inflation means those rate cuts may still be some time away.
“Inflation remains the key issue for the Australian economy. Until it’s brought under control, the risk of higher interest rates will remain and it’s difficult to see a sustained recovery in the housing market.”
Interest rates remain the key focus
While the Reserve Bank does not directly target property prices, Cameron said the strength of the labour market and ongoing inflation pressures remain the key considerations for monetary policy.
Despite recent housing market weakness, Australia’s employment market continues to perform strongly, reducing the likelihood that the Reserve Bank will cut interest rates in the near term.
In fact, Cameron said the possibility of further interest rate increases should not be ruled out if inflation remains stubbornly high.