Top Economist Warns of 'Biggest House Price Correction' in Australian History

Australia may be heading towards the most significant house price correction on record, warns Christopher Joye, chief investment officer at Coolabah Capital. He described the current situation as the "mother of all house price corrections," with Sydney and Melbourne predicted to be the hardest hit.

"On the last three months of data, Sydney house prices are falling at a 12 per cent annual rate," Joye told Mark Bouris, chairman of Yellow Brick Road, on his Straight Talk podcast. "Melbourne prices are also falling at a double-digit annual rate."

Recent data from Cotality shows Sydney's housing prices dropped by 3.3 percent in the last quarter, with year-on-year growth at -0.1 percent. Melbourne experienced a 2.7 percent quarterly decrease, and its annual gain stood at 1.7 percent.

These declines are being attributed to a combination of factors, including rising interest rates and tax modifications introduced in the May 12 budget. The Albanese government's new legislation will eliminate the 50 percent capital gains tax (CGT) discount and limit negative gearing to newly constructed properties. Existing investments are grandfathered under the new rules, meaning current property owners will not be affected.

Joye characterized these changes as "cataclysmic for the country," a sentiment echoed by Bouris, who noted that prices are "falling like a stone" and dismissed Treasury claims that the tax changes would curb growth. He observed that some regions, like Victoria, are experiencing worse downturns than others, but acknowledged that Sydney is also suffering.

Further data from REA Group revealed that home prices fell in almost every major Australian capital in June, with Sydney and Perth seeing the steepest decreases of 0.5 percent. Darwin was an outlier, with values increasing by 0.2 percent, making it Australia's second-best performing housing market over the past year, trailing only Perth.

Joye suggested that house prices could decline further if immigration policies are altered or if interest rates continue to rise. The Reserve Bank of Australia has maintained the cash rate at 4.35 percent after three earlier increases, but Coolabah anticipates a potential rise to 4.75 percent or even 5 percent. Joye believes a "multi-year battle against inflation" may necessitate further rate hikes by the RBA.

Immigration numbers have also decreased in recent years, with overseas visitor arrivals reaching 301,000 in 2025, down from a high of 550,000 in 2022. Political parties, including One Nation, Prime Minister Anthony Albanese, and Opposition Leader Angus Taylor, have indicated plans to reduce immigration levels. Joye warned that such a reduction, combined with higher interest rates and tax uncertainty, could significantly impact the housing market, especially given the decline in population growth from immigration.

"If you turn off the immigration taps, you're not going to have any population growth… trivial population growth because we don't have much in the way of natural fertility," Joye stated. "So I think the prospects for the housing market are a little grim."