Key facts
- Australia's housing market is facing its worst slowdown since the pandemic.
- Home prices in Sydney and Melbourne have declined by nearly 5% this year.
- Mortgage inquiry levels saw a 14% decrease in June compared to the previous year.
- The New South Wales government revised down its stamp-duty revenue forecasts by A$5.3 billion over four years.
- Bank shares have fallen 12% since February, resulting in a market value loss exceeding A$60 billion.
- Myer, a department store, issued a warning about a slump in consumer spending, attributing it partly to the weaker housing market.
Australia's normally robust housing market is experiencing its sharpest downturn since the pandemic, driven by rising borrowing costs and a significant reversal of investor tax breaks. Home prices in major cities like Sydney and Melbourne have fallen nearly 5% this year, leading to a noticeable drop in buyer activity, auction clearance rates, and loan inquiries.
This slowdown is expected to have ripple effects across the broader economy. Real estate agents, removalists, and tradespeople are reporting reduced workloads, while state governments are anticipating substantial losses in stamp-duty revenue. The New South Wales government, for instance, has already cut its stamp-duty forecasts by A$5.3 billion over the next four years.
The decline in property values also poses a risk to consumer spending through the wealth effect, as a large majority of Australian households own their homes. Many clients are postponing renovation projects, according to business owners like Jason Zhang, who expressed concern about future work drying up unless interest rates decrease.
The Reserve Bank of Australia (RBA) has acknowledged the housing market's slowdown, with Governor Michele Bullock stating it serves as a litmus test for whether financial conditions are sufficiently tight to curb inflation. The RBA's earlier interest rate hikes, aimed at taming inflation, have contributed to the cooling property market.
Further pressure comes from a government overhaul of investor tax breaks, including curbs on negative gearing for established homes and the elimination of a tax discount for investors. Data shows a significant drop in mortgage inquiries, with higher borrowing costs making properties less affordable for first-home buyers despite price declines. Investors have also withdrawn from plans, altering market dynamics.
The cooling housing market is impacting Australia's banks, which face increased competition for borrowers and have seen their shares fall 12% since February, erasing over A$60 billion in market value. Retailers are also feeling the pinch, with Myer warning of a consumer spending slump due to pressures on households, including the weaker housing market.
New property listings are decreasing, and homes are taking longer to sell. In Sydney, unit sales in June were the lowest in at least five years, excluding seasonal lulls, and open-home attendance has significantly decreased. With oil prices remaining high, expectations for an RBA policy easing next year have diminished, dampening hopes for a swift housing market recovery.