Australian homes lose $34 billion as prices face biggest fall in 30 years

ABS data on Tuesday revealed Australia's residential property market lost $34.1 billion in value during the June quarter, marking the first decline in the nation's housing stock since 2022. 

The total value of Australia's dwelling stock fell 0.3% to $12.69 trillion. 

ABS said the quarterly fall was driven by lower property prices, with the mean dwelling price dropping 0.7% to $1.1 million. 

"This is consistent with recent softening in housing market conditions," ABS head of finance statistics Dr Mish Tan said.

The data comes just as HSBC downgraded its outlook from an 8% peak-to-trough decline in national home values to 13%, as higher interest rates and recent tax changes weigh on demand. 

If realised, the bank said it would be the biggest housing price correction in 30 years, with the largest one in 2017-2019 when capital city housing prices went down 8%.

HSBC's previous forecast was delivered in the wake of tax policy changes announced in the federal budget. 

"As we had expected, the housing market has weakened quickly following the significant tax changes that were delivered in the 12 May federal budget," HSBC chief economist Paul Bloxham said. 

"However, the falls that have arrived have been bigger than we had thought," he added.

See also: Home values fall across 93% of capital city suburbs

Downturn already underway

HSBC noted that national home values have already fallen around 5% from their April peak, with Sydney and Melbourne leading the declines. 

The latest ABS figures paint a similar picture, with New South Wales (-2.4% or down $32,700) and Victoria (-2.1% or down $19,600) leading the falls in mean price.

This is also consistent with several market reports released in recent months. 

HSBC's forecasts suggest every major capital city will experience price declines, although some markets are expected to fare worse than others.

• Sydney: -16%
• Melbourne: -14%
• Brisbane: -10%
• Adelaide: -7%
• Perth: -10%
• Hobart: -7%
• Canberra: -12%

Sydney is expected to record the steepest decline, followed closely by Melbourne. 

While mid-sized capitals offered a buffer earlier this year, with values rising even as Sydney and Melbourne declined, the downturn has now been broad-based across all capital cities. 

See also:

• Australia's 'safe' housing markets are now falling too
• Sydney, Melbourne prices fall as Perth booms

"Even markets that were previously running hot, like Perth and Brisbane, are now seeing housing price declines," Mr Bloxham noted. 

According to the bank, the softening in the mid-sized capitals is largely driven by investors pulling back from the market.

"Investors had been a key driving force in these markets and we expected that the tax changes would sharply weaken investor demand," he added. 

Higher rates could offset the benefits of lower housing prices

While falling property values might appear to be good news for prospective buyers, especially first home buyers, HSBC said affordability would remain a challenge. 

Unlike previous downturns, barring the post-pandemic decline in 2022, the current one is expected to be an "outlier".

Notably, in previous price corrections, RBA cash rate cuts followed. 

However, the bank expects the monetary policy board to raise the cash rate at least once more, and potentially twice in the near term as inflation remains above target and economic growth has been stronger than expected. 

"The current housing price decline is therefore occurring with no near-term ‘circuit breaker' to be offered by the RBA," Mr Bloxham said. 

"As we see it, market participants need to start anticipating rate cuts to see an upswing in housing prices but we see further rate hikes in the short run and don't expect cuts until H2 2027."  

Three of the big four banks also expect further tightening this year, with NAB tipping a September cash rate hike and CommBank and ANZ expecting it to be delivered in November  

Chronic undersupply could prevent a deeper downturn

Despite its bearish near-term outlook, HSBC noted in its report that Australia's longstanding housing supply constraints may limit significant price collapse. 

"Even if housing prices decline 13% peak-to-trough as we expect, it will still leave them elevated in historical terms – nearly 30% above pre-pandemic levels," Mr Bloxham said. 

Official data appears to corroborate this view, with ABS data showing Australia's total value of dwelling stock up 8.5% over the year.