House prices in Australia could fall by as much as 40% in some suburbs, signaling the nation's most severe property downturn on record, according to Chris Joye, founder and chief investment officer at Coolabah Capital Investments.
Joye's warning comes as borrowers grapple with four interest rate hikes from the Reserve Bank of Australia this year, with another increase possible in November. He noted that Sydney prices are already declining at an annualized rate of 18%, and he anticipates a peak-to-trough national decline of approximately 13%. "On our numbers, individual suburbs (in Sydney) will fall as much as 20 to 40 percent," Joye stated on the Mark Bouris Straight Talk podcast. "National house prices are currently falling at about a 16 percent annual rate. We're expecting the national peak-to-trough fall to be about 13 percent."
He predicted that the record for the largest fall in house prices would be broken before Christmas. "So Sydney's falling at 18 percent per annum, Melbourne a bit less than that, but double-digit all around the country."
Beyond the property market, Joye cautioned that the downturn could coincide with a recession, leading to a significant increase in unemployment and business failures. "I think it's going to be tough," he said. "There'll be adversity and your house is not going to be worth as much as it was, and your super's probably not going to be worth as much as you thought it was going to be worth, and you're going to have to work a little longer. Maybe you won't retire when you thought you were going to retire."
Other property experts offer more conservative forecasts, with a survey of 384 real estate professionals suggesting an eight to 11 percent fall from the March peak, with recovery not expected until September 2027. Dwelling values have already dropped 5.2 percent since March, according to property data firm Cotality. An 11 percent decrease for Sydney and Melbourne would revert values to early 2021 levels.
Sherman Chan, head of research at the Australian Property Institute, attributed the market slowdown to buyer hesitancy driven by uncertainty over interest rates and government policy. "People are worried about more interest rate hikes on the horizon, and they are after greater clarity," Chan told AAP. Higher interest rates, inflation, and potential changes to tax concessions for property investors were cited as primary concerns.
The RBA raised its cash rate to a 15-year high of 4.6 percent in late September, with Governor Michele Bullock indicating further increases may be necessary to control inflation, even if it means a weaker labor market and falling property prices. The International Monetary Fund projects inflation to remain above the RBA's target until the end of 2027.
Chan also pointed to uncertainty surrounding the government's proposed tax changes, which would limit negative gearing to new builds and tax real capital gains at a minimum rate of 30 percent from July 2027, as a significant factor weighing on buyers. "There's a lot of 'wait and see.' High inflation and cost-of-living concerns don't really justify the slump that we are seeing," she said. "It is really about the lack of clarity about the policy changes that's holding people back."
AMP forecasts a 15 percent drop in Australian house prices, which could mark the worst downturn in history. Such a decline would erase approximately $139,971 from national home values and $241,057 from Sydney prices, potentially leading to mortgage stress and negative equity for recent buyers who purchased near the market's peak.
Joye attributed Australia's inflation issues primarily to government spending, population growth, and weak productivity, rather than international factors like fuel prices stemming from the conflict between the US and Iran. He stated that state and federal governments have increased spending by $660 billion on cheap credit since 2022. "It's all public spending. It's all population growth and migration," he said. "And it's all productivity. I mean, the oil price stuff is at the margins."