Australian Property: A Slow Puncture, not a Blowout...
Cotality has national home prices down 0.9% in August, with the capital cities off 1.1% - the fifth monthly fall in a row. July's drop was quietly revised from a mild 0.7% to a less mild 1.2%, which is the market's way of admitting the early reads were too kind. Nationally, prices now sit 3.6% below their peak.
None of this should surprise anyone who's been paying attention. The downturn started building late last year, and it isn't one villain doing the damage - it's a convergence: rate hikes, the Budget's tax changes on investors, affordability that stopped making sense some time ago, and buyers who are, reasonably, nervous. The expanded 5% low-deposit scheme for first home buyers is playing its part too, funnelling demand into the cheaper end of the market while everything above it cools.
10% from top to bottom
AMP Capital has cut its forecast - a top-to-bottom fall of roughly 10% nationally, down from the 7% it had pencilled in earlier. That's about 6% this calendar year and 8% across the current financial year. For the capital cities, think closer to 11%. It's a deeper correction than the average capital-city downturn of the past 40 years - but these aren't average conditions. A structural tax change of this size, with the RBA likely to push the cash rate above its last cyclical high, doesn't come along often.
Four forces are driving it:
Interest rates.
AMP still expects one more hike by year-end. Inflation is too high and taking too long to come down, and the RBA won't risk expectations getting away from it. Rate hikes do what they always do - shrink how much people can borrow, dent confidence, and nudge a few distressed sales into the mix.
The Budget tax changes.
This is the big structural one. Curtailing negative gearing and taxing real capital gains at a minimum 30% rate means a materially lower after-tax return for investors. So the rational move is to sit on the sidelines until prices fall, rents rise, or some mix of the two lifts the starting yield enough to justify the higher tax bill. We haven't seen a shift like this in decades, which means the size of the hit is genuinely uncertain - and the risk sits on the downside.
Confidence.
Off its lows, but still soft. Plenty of people simply don't think it's a good time to buy, and they're voting with their wallets.
Affordability.
The price-to-income ratio is still near record highs. After a roughly 50% surge since the pandemic, the recent falls are barely a nick off the top - and higher mortgage rates have swallowed some of the relief that lower prices should have delivered.
Not all markets are equal
Expect a wide spread between cities and property types. On an inflation-adjusted price-to-rent basis, houses look about 38% overvalued nationally; units, just 8%. So houses are far more exposed. Brisbane, Adelaide, Sydney and Hobart are the most stretched on houses and likely to fall more than 11%. On units, Brisbane, Adelaide and Canberra are the ones to watch. Melbourne, for once, is the least vulnerable in the room.
Is the 30-year super cycle over?
Here's the bigger question worth sitting with. From 1989, when mortgage rates peaked near 17%, to 2021, when they bottomed around 2%, falling rates were a three-decade tailwind that pushed home prices well ahead of incomes. That tailwind now looks like a headwind. Add a far less generous tax regime for investors, record-poor affordability, and a political tilt toward lower immigration, and you have the ingredients for the super-cycle upswing to be at or near its end.
If it is, the likely shape isn't a crash - it's a decade or so of real house prices grinding sideways while the price-to-income ratio slowly normalises, particularly for houses. The honest caveat: the housing shortage is real and stubborn, and it's the one thing that makes calling time-of-death on the super cycle a mug's game. It's a view worth holding loosely.
What it means for the economy...
A softer property market ripples outward. The RBA's own rule of thumb is that a 10% price fall trims consumer spending by around 0.8% after two quarters and 1.6% over the long run. Falling established-home prices also blunt the incentive to build new ones, which drags on construction and everything downstream of it. Negative equity is low today and mostly matters for anyone forced to sell - watch the recent buyers who came in late last year with thin deposits. And for the banks: bad loans will tick up (manageable, they're well capitalised), while weaker credit demand is already showing up in their share prices.
Net effect: the downturn takes some pressure off interest rates over time - just not yet enough to stop a near-term hike. Rate cuts are more a late-2026 story.
Could it become a crash?
Unlikely, on AMP's base case. A 20%-plus fall requires widespread forced selling, and that requires a serious jump in unemployment. We're at 4.5%. New Zealand and Canada, which have both seen 15–20% falls, are sitting at 5.6% and 6.4%. So the risks over the next 6–12 months are skewed to the downside, but without a real spike in joblessness, a genuine crash isn't on the cards.
The four things worth watching from here: interest rates, unemployment, consumer confidence, and investor demand. If those turn sharply, so does everything above.
Note: The analysis and forecasts below draw on recent market commentary from AMP Capital. The numbers and the calls are theirs; the framing is ours. As always, none of this is personal advice - it's a read on the market, not a recommendation about your situation.
Our take...
Here's the part that matters more than the forecast: if you're not selling, a 10% dip in a home you plan to keep is a number on a page, not a loss in your life. Property cycles come and go - your plan shouldn't lurch every time one does.
The people who should actually lean in are a smaller group: anyone who bought in the last year on a slim deposit, anyone who'll need to sell in the next two or three years, and investors working out whether the new tax settings still stack up. If that's you, let's model it against your actual numbers rather than guess - the gap between selling into this market and holding through it can be large, and it's specific to your situation, not AMP's.
For everyone else, the more useful question isn't "where do prices go from here" - nobody knows, and AMP would tell you the same, given they've flagged the housing shortage as the one thing that could upend the whole thesis. The better question is whether your cash flow, your borrowing and your retirement plan still hold up with rates higher for longer. If they do, the headlines are noise. If they don't, that's a conversation worth having now, while you still have options - not later, when the market makes the decision for you.
Enjoy your weekend!
Rick Maggi CFP, Westmount Financial, Financial Advisor, Perth
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Disclaimer: This article has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.