For the fifth consecutive month, Australian home values have retreated, with the nation's largest cities absorbing losses that now approach seven percent from their recent peaks. The Reserve Bank's campaign against inflation has cooled the economy with precision, but the instrument of that cooling — rising interest rates — is now pressing on the very households whose spending sustains growth. What unfolds in Australia is a familiar human tension: the tools used to restore balance can themselves become a source of imbalance, and the question is whether the correction finds its floor before the
Australia’s biggest property downturn since pandemic threatens economic growth
Only 35 percent of the way through the slump
Mark
So we're five months into this decline now. How unusual is that for Australia?
Mimi
It's significant. We don't see sustained monthly drops like this very often. The fact that Sydney and Melbourne are leading the way tells you it's concentrated in the markets where prices had run furthest ahead.
Luke
But I want to be careful here—Cotality is one consultant. Do we know if other property trackers are seeing the same numbers?
Mimi
That's a fair question. The source only gives us Cotality's figures. Other indices might show slightly different rates of decline.
Mark
And this 7 percent from peak—that's already happened, or is that the forecast?
Mimi
That's already happened. Sydney and Melbourne have already lost that much from their highs.
Luke
Right. So when Oliver says we're 35 percent through the slump, he's basing that on his own forecast of a 10 percent total decline. That's his estimate, not something we can verify yet.
Mimi
Correct. He's saying if his 10 percent prediction is right, then we're roughly a third of the way there.
Mark
And the RBA—they're still raising rates even as this happens?
Mimi
They've signaled they might raise further. The inflation fight is still their priority.
Luke
Though we should note the source says they "can still go higher," not that they definitely will. That's the RBA's own language about possibility, not commitment.
Mark
So households are getting squeezed from both sides.
Mimi
Exactly. Falling home values and higher borrowing costs at the same time.
Luke
And we won't know the full economic impact until we see the GDP figures on Wednesday and then track consumer spending in the months ahead.
Le Pouls
- National home prices fell 0.9 percent in August alone — the fifth straight monthly decline — with Sydney and Melbourne each shedding more than one percent of value in a single month.
- Households watching their largest asset erode are pulling back on discretionary spending, threatening to deepen an economic slowdown already forecast to show annual GDP growth of just 1.8 percent.
- The Reserve Bank, still focused on taming persistent inflation, has signaled further rate rises — leaving homeowners caught between falling asset values and elevated borrowing costs with no relief in sight.
- Economist Shane Oliver estimates the market is only 35 percent through its downturn, projecting a total peak-to-trough decline of 10 percent before stabilization begins in the second half of next year.
- The dual squeeze of declining wealth and tight monetary policy is expected to persist well into 2027, amplifying rather than cushioning the broader economic deceleration.
For the fifth consecutive month, Australian home values have retreated, with the nation's largest cities absorbing losses that now approach seven percent from their recent peaks. The Reserve Bank's campaign against inflation has cooled the economy with precision, but the instrument of that cooling — rising interest rates — is now pressing on the very households whose spending sustains growth. What unfolds in Australia is a familiar human tension: the tools used to restore balance can themselves become a source of imbalance, and the question is whether the correction finds its floor before the broader economy loses its footing.
Australia's housing market has now contracted for five consecutive months, with national prices falling 0.9 percent in August following a steeper 1.2 percent drop in July, according to property consultant Cotality. Sydney and Melbourne, the country's two dominant markets, are each down more than a percent in a single month and have shed roughly 7 percent from their recent peaks.
The decline arrives at a fragile moment. GDP figures due Wednesday are expected to show annual growth of just 1.8 percent in the second quarter — a sharp deceleration from 2.5 percent — as the Reserve Bank's successive rate increases take hold. Officials have signaled they may tighten further to contain persistent inflation, even as falling home values erode the household wealth that underpins consumer spending. The link is direct: when people watch their largest asset lose value month after month, discretionary purchases contract, and with them, the engine of growth.
AMP chief economist Shane Oliver estimates the market is only about 35 percent through the current cycle, forecasting a total peak-to-trough decline of 10 percent before prices stabilize and begin recovering in the latter half of next year. That trajectory implies several more months of losses ahead.
Yet the Reserve Bank is unlikely to pivot toward rate cuts in response. Inflation remains its primary concern, and officials appear willing to accept slower growth as the cost of restoring price stability. For Australian households, this means the dual pressure of falling asset values and elevated borrowing costs will likely persist through the rest of this year and well into 2027.
Australia's housing market is contracting for the fifth consecutive month, with national prices dropping 0.9 percent in August alone. The decline, measured by property consultant Cotality and released Tuesday, follows a steeper 1.2 percent fall in July. Sydney and Melbourne—the country's two largest property markets—are bearing the brunt, each shedding more than a percent of value in a single month. From their recent peaks, homes in these cities have lost roughly 7 percent of their worth.
The timing of this downturn creates particular economic vulnerability. Australia's gross domestic product is expected to show significant deceleration when figures arrive Wednesday, with economists forecasting annual growth of just 1.8 percent in the second quarter, down from 2.5 percent in the first. The Reserve Bank of Australia engineered this slowdown through successive rate increases, and officials have signaled they may raise rates further as they battle persistent inflation. Into this environment arrives a housing market that is eroding the wealth households have accumulated and, by extension, their willingness to spend.
The connection between falling home values and consumer behavior is direct and consequential. When people watch their largest asset decline in value month after month, they tend to pull back on discretionary purchases—the very spending that drives economic growth. With growth already cooling and the central bank still tightening monetary policy, a sustained property decline threatens to amplify the slowdown rather than cushion it.
Shane Oliver, chief economist at AMP, offers a framework for understanding how much further this cycle might run. He estimates the market is only about 35 percent through the current downturn, measured both by the total percentage fall still to come and by the number of months the decline will persist. His forecast calls for a peak-to-trough decline of 10 percent overall, with prices stabilizing and beginning to recover in the second half of next year. That projection means several more months of monthly losses lie ahead before any reversal takes hold.
Yet Oliver also notes a constraint on how the Reserve Bank might respond. The housing slump will weigh on growth, but not heavily enough—at least not yet—to convince the central bank to pivot from raising rates to cutting them. The inflation problem remains the RBA's primary concern, and officials appear willing to accept slower growth as the price of bringing price pressures under control. This means households facing declining home values cannot expect relief from lower interest rates anytime soon. The dual squeeze—falling asset values combined with elevated borrowing costs—will likely persist through the remainder of this year and into 2027.
Citations marquantes
The home price slump will weigh on economic growth, but is not significant enough yet to change the direction of the RBA rate moves from up to down given the inflation problem.— Shane Oliver, chief economist at AMP
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