ABC's senior finance commentator Alan Kohler has cautioned that Australia is likely heading towards a recession and a severe housing market downturn, potentially the worst since 1998, if the Reserve Bank of Australia implements another interest rate hike.
Kohler expressed regret for delivering the somber outlook, stating, "I'm sorry to say that." He noted that consumer confidence has dropped by five percent, and business conditions have turned negative for the first time since the pandemic. "What all this means is that if there's a rate hike in September, as the market now thinks there will be, it's very likely there will be a recession because sentiment is so negative," Kohler explained.
His warning follows a revision of house price forecasts by HSBC chief economist Paul Bloxham, who now predicts a 13 percent drop, a significant downgrade from earlier expectations of a 10 percent decline. This shift in prediction came after Reserve Bank of Australia officials indicated a potential rate increase later in September.
The current cash rate in Australia stands at 4.35 percent. An anticipated 25-point increase would bring it to 4.6 percent, the highest level since November 2011. Experts predict this could be the fourth rate hike before the end of the month. The Reserve Bank of Australia aims for an inflation target band of two to three percent, a goal it expects to achieve by the end of next year. However, July's inflation figures exceeded forecasts, with headline inflation at 3.5 percent and trimmed mean inflation at 3.6 percent.
Despite the concerns, Reserve Bank Australia Deputy Governor Andrew Hauser stated that a rate rise is not inevitable, though he acknowledged that inflation remains too high. "The economy in Australia, in many ways, is doing quite well," Hauser told ABC's 7.30, citing growth at trend, near-historic low unemployment, and growing real household incomes. "But we have one big problem and that's inflation … that's why we raised interest rates three times at the beginning of this year."
Australian property values have already seen a decline, with $34.1 billion wiped off in the three months ending June, according to the Australian Bureau of Statistics. This 0.3 percent decrease, while notable, is viewed against a backdrop of a 12.3 percent rise in dwelling values since the start of 2025. The total value of Australian dwellings remains at $12.7 trillion, reflecting decades of growth. Housing Minister Clare O'Neil has highlighted the changing housing landscape, noting that young couples with low incomes are now half as likely to own a home compared to 45 years ago, impacting national aspirations.