Key facts
- National property values have fallen 5.2% since March.
- Interest rate hikes and tax reforms are driving the downturn.
- Some recent first home buyers may face negative equity.
- Prices are still close to record highs, up 5.8% year-on-year.
Australian home prices are experiencing a significant downturn, with national values down 5.2% in September from their March peak. This decline is attributed to a combination of rising interest rates, which have increased mortgage costs and reduced borrowing capacity, and tax reforms introduced in the May federal budget aimed at curbing residential investment.
The Reserve Bank of Australia has raised interest rates four times this year, and further increases are anticipated, leading experts to predict an overall price reduction of 10% to 15%. While this downturn is the fifth in 20 years, a 15% fall would be the largest on record. Despite the declines, median national property prices have climbed 78% since 2020, and current prices remain close to record highs, with the national median home value only 0.9% lower than in March.
The tax reforms, which restrict negative gearing to new homes and abolish the capital gains tax discount for assets held over 12 months, were intended to level the playing field for first-home buyers and encourage investors toward new builds. However, the uncertainty generated by these changes may be having a broader impact on buyer caution. While declining prices may offer an opportunity for first-home buyers, reduced borrowing capacity due to rate hikes could offset affordability gains for many.