In this week’s podcast, Nucleus Wealth’s Chief Investment Officer, Damien Klassen, is joined by Leith van Onselen of MacroBusiness to examine why Australia’s housing downturn could have much further to run. With prices now falling across much of the country and forecasts pointing to a potential double-digit correction, we unpack what’s driving the decline, how higher interest rates are changing the outlook, and why the worst drop may still be yet to come.
Key Talking Points
- House prices may face a historic correction: The current decline could surpass Australia’s previous national record of roughly 8.6%.
- Higher interest rates are driving the downturn: Further Reserve Bank rate hikes could accelerate falling prices.
- Investor demand is being squeezed: Changes to negative gearing and capital gains tax are reducing investors’ borrowing capacity and market participation.
- Anti-money-laundering rules add another headwind: New property regulations may reduce illicit and foreign capital flowing into Australian housing.
- Immigration is expected to slow: Lower migration would reduce one of the major sources of housing demand, particularly in the rental market.
- Fiscal austerity could weaken housing demand: Government spending cuts may reverse the household stimulus that supported property prices during the pandemic.
- Higher-priced homes are falling fastest: The top quarter of the market is experiencing larger declines, while cheaper properties are being supported by first-home-buyer demand.
- Brisbane, Perth and Adelaide may be next to weaken: Rising listings and longer selling times suggest these markets could catch up with declines already seen in Sydney and Melbourne.
- Headline price data may understate the real decline: Renovations and property improvements are not fully captured, potentially making actual value losses look larger than official measures suggest.
- Rent growth may remain elevated but face limits: Tight construction and population growth support rents, but affordability pressures could push more people into shared or multigenerational housing.
- Construction faces a difficult outlook: Falling prices, high interest rates, rising building costs, labour shortages and tighter private credit are expected to restrict new housing supply.
- Melbourne could lead the eventual recovery: Its relative affordability and smaller post-pandemic price boom may position it for an earlier rebound than other capitals.
- Australia may be entering a new housing cycle: Structurally higher interest rates, demographic changes and tax reforms could replace the long-standing “buy the dip” mentality with slower growth tied more closely to incomes.
- Government housing support may have arrived at the wrong time: The 5% deposit scheme could have encouraged buyers to enter just as the market was reaching its peak.
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Damien Klassen is Chief Investment Officer at the Macrobusiness Fund, which is powered by Nucleus Wealth.
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The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an Authorised Representative of Nucleus Advice Pty Limited, Australian Financial Services Licensee 515796. And Nucleus Wealth is a Corporate Authorised Representative of Nucleus Advice Pty Ltd.