Will The Australian Property Market Crash?

When it kept rates on hold in August, the Reserve Bank of Australia disappointed a lot of Australians and businesses hoping for some relief from high mortgage repayments.

The steady increase in the cash rate from .35% in May 2022 to 4.35% in November 2023 has clearly had an impact on the purchasing power of property buyers.

Although interest rates are expected to eventually go down by late 2024 or early 2025, they are unlikely to return to those very low pre-covid rates.

“You’d have to expect going forward, interest rates aren’t going to come down to the same sort of level as what we’ve seen pre-pandemic,” director of research at CoreLogic, Tim Lawless, says.

Lawless says that a big contributor to the very long run of growth in property before, and then during, the pandemic was the long period of consistently lower interest rates.

“My speculation is we probably won’t see another period where interest rates are consistently falling like what we did over the past or the decade leading up to the pandemic,” he says.

So, what then is the outlook for the Australian property market? Are we headed for a crash, or even a slump?

Both Lawless and Powell point out that one of the biggest issues in property is affordability, with the Federal Government announcing a national target of 1.2 million “new, well-located homes over the next five years” as part of its Housing Support Program in July 2024.

“I think it’s fair to say that the federal and state governments will be doing everything they can to get more housing supply into the marketplace, given their 1.2 million target over the next five years for completed dwellings,” Lawless says.

Powell adds that a median house price of $1.66 million in Sydney is extraordinary. And while sellers have responded to this record pricing and momentum and have continued to list new properties for sale, absorption of those properties has slowed down.

“Listings are coming to the market, but they’re not being sold as quick. What that means is we’re seeing a bit of a build-up of stock. And when you start to see that, that’s a telltale sign that market dynamics are on slowdown. Breaks are on. Buyers have got choice, and what you see then is slower rates of price growth, or prices start falling, which we have now got in certain markets,” she says.

The CoreLogic Home Value Index for Melbourne, for example, was down 0.9% for the quarter to end July.

“That’s a good example of some downward pressure in a market that doesn’t have the same growth drivers as a lot of other markets around the country, and it’s also had a better supply response historically as well, and that’s probably, more broadly, the underlying factor that’s supporting prices in Australia is just this ongoing undersupply of housing,” Lawless says.

Powell says that it is unlikely the Australian property market is going to see a big crash even if the government’s promised 1.2 million dwellings come to market.

“I don’t think that’s going to create a deep pullback in price. The way I would describe it is it’s the supply that Australia desperately needs,” she says.

Lawless points out that, typically, if the Australian property market does slow, any period of decline is rarely larger than 15% from peak to trough and then a new growth cycle begins.

“The pendulum does have a have a habit of swinging. At the moment, we’re in an undersupply,” he says.

“Who’s to say, in three or four years from now, we could be in an oversupply that would probably result in some downward pressure on housing prices?

“I don’t think I’d describe it as a crash or the bottom falling out of the market: a 10% to 15% drop in housing prices probably would be a good thing overall to restore some affordability in housing prices.”