The Great Reversal: Unpacking Predictions of Australia’s Housing Market Downturn

In a world where rising house prices seem to be the norm, there are strong indications that the Australian real estate market could be in for a shift. According to a recent article from the Australian Financial Review, the surge in house prices may slow down and possibly reverse in the next six months unless interest rates decrease​1​.



TCorp chief economist Brian Redican warns that the robust rebound in house prices this year might be short-lived if the underlying fundamentals of the market do not improve. TCorp, the NSW Treasury Corporation, is a significant player in this space, managing a staggering $101 billion in funds​1​.

Despite the 11 interest rate hikes since May last year, house prices increased by 1.2% nationwide last month. This trend is attributed to low listings and high demand, which have so far shielded the market from the negative effects of these interest rate increases. However, Redican suggests that this dynamic is primarily driven by sentiment and could change abruptly, especially considering looming affordability issues​1​.

Shane Oliver, AMP Capital chief economist, reiterates this sentiment, stating that further rate increases are likely to weaken the market. The risk, he says, is that the pool of buyers unaffected by interest rate hikes will eventually run out. This scenario could lead to a hard landing for the property market and potentially trigger an increase in distressed selling​1​.

Furthermore, there are already signs that the economy is slowing down, with weak retail sales, a decline in building approvals, and a decrease in job openings. Oliver warns that a 4% plus cash rate will push debt servicing costs into record territory as a share of household income. This situation could make cash flow negative for about 1 million people with a variable rate mortgage by year-end, posing high risks to the property market​1​.

While factors like population growth and low housing supply are currently supporting prices, Redican warns that home values can’t defy the weakening fundamentals indefinitely​1​.

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