Source : the age
Falling house prices are unlikely to start turning around until buyers and investors believe the Reserve Bank is poised to cut interest rates, a former bank economist has cautioned ahead of key inflation figures that could show price growth easing to its slowest pace in a year.
Paul Bloxham, the current Australia chief economist for HSBC, on Monday said the nation’s housing market was already in the “early stages of a slump” that may not be arrested until well into next year when the RBA is expected to start considering interest rate relief.
House values in Sydney and Melbourne have fallen by more than 3 per cent so far this year while every other capital city market is slowing. Auction clear rates are also hovering at or below 50 per cent with clear evidence that investors have moved out of many markets.
The market slowdown started ahead of the Reserve Bank’s decision to start lifting interest rates since February, but it has accelerated as inflation has picked up due to the war against Iran and the federal government’s planned changes to negative gearing and capital gains tax.
Bloxham said the downturn would likely continue for an extended period given the headwinds facing the entire market.
“The housing market won’t turn around until market participants believe that interest rates are set to fall,” he said.
“We see this as quite some time away, with the RBA still concerned that inflation is too high and still some risk that the central bank could choose to lift rates further yet in the near term.”
The Reserve’s interest rate-setting committee next meets in September, with economists and financial markets not expecting any change to the current cash rate of 4.35 per cent. Markets put the chance of a rate rise by February at 50-50, before expecting the bank to start cutting rates late next year.
Bloxham said falling house prices would actually help the Reserve Bank get inflation under control.
He said consumers were often less confident or less willing to spend as much as usual if house prices fell. Lower values also weakened the overall property market, reducing demand in areas such as furniture or home furnishings.
They also often weakened housing construction, which has been a key source of inflation over recent years.
Bloxham also said a reduction in new investors in the housing market may put upward pressure on rents, but noted that in a slowing property market any increases may be tempered.
Rents and housing construction costs will be closely watched in the July monthly inflation report to be released by the Australian Bureau of Statistics on Wednesday.
Headline inflation eased to 3.8 per cent in June. But analysts believe the July result could show it falling to 3.3 per cent as the electricity subsidies that ended in mid-2025 fall out of the overall figure.
Underlying inflation is also expected to ease by 0.1 percentage point, taking it to a still elevated 3.5 per cent.
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Shane Wright is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X or email.
