Australia nears 'largest property downturn in 40 years' as prices plunge

Australia is approaching what could be the most significant property market downturn in 40 years, as home prices continue to decline at an unprecedented rate. Recent data shows that the median value of Australian homes has fallen by $63,400 since March, with national house prices experiencing a drop for the seventh consecutive month. According to property research firm Cotality, the decline in home values is occurring more rapidly than in any previous downturn over the last four decades.

The latest Home Value Index (HVI) from Cotality indicates a decrease of 1.2 percent in October, bringing the overall decline to 6.7 percent from its March peak. The current median house price across the nation is now $884,855. Gerard Burg, head of research at Cotality, noted that capital city values have plummeted by 8.1 percent over the last seven months, marking a decline that is poised to surpass previous downturns.

In cities such as Brisbane, Perth, and Adelaide, nearly all suburbs have witnessed falling property values in recent months, largely due to the challenges buyers face in securing loans amid rising interest rates. The demand from investors has also diminished, partially due to recent changes in federal property tax regulations. "This is really a demand-led downturn," stated Burg. "The increased cost of borrowing has not only diminished household purchasing power but also raised mortgage repayments, pushing many potential buyers out of the market."

Economists, including Burg, expect that interest rates will remain elevated for an extended period, which could further exacerbate the decline in house prices. "We are already on track for the largest downturn in the past 40 years," he remarked, pointing out that the previous record, from 2017 to 2019, saw a decline of 8.2 percent across combined capital cities. Currently, the downturn stands at 8.1 percent, indicating that it is likely to exceed the previous record.

Burg emphasized that the current downturn should be viewed in light of the significant price increases seen prior to this decline. "Cities like Brisbane, Adelaide, and Perth have more ground to lose due to their substantial growth over the last five years," he explained. Conversely, Melbourne’s values have comparatively less room for decline, which is already reflected in the current market dynamics.

Established homeowners in certain cities may find themselves somewhat protected, as many have built a considerable equity buffer during the previous price surge. For instance, a 20 percent drop in Perth’s home values would revert prices to levels last seen in mid-2025. However, homeowners in Melbourne and Sydney are in a weaker equity position, with Melbourne’s home values down 7.3 percent from five years ago and Sydney’s prices 1.5 percent lower than in October 2021. Values in the Australian Capital Territory have remained largely unchanged over the same period.

As demand weakens, home sales have significantly declined. Cotality reports that the number of home sales in the last three months is 23 percent lower than a year ago and 18 percent below the five-year average. The reduced number of buyers has made selling homes increasingly difficult, with auction clearance rates across major capitals consistently falling below 50 percent, while private treaty sales have also seen a decline.

The median time a property spends on the market has risen to 39 days, the highest since August 2020, and vendor discounting has reached 4.7 percent, the largest since May 2019. Burg noted that buyers are likely to remain hesitant until the Reserve Bank of Australia signals a shift in interest rates, which may not occur until the latter half of 2027. "The recovery in the housing market is likely to be more subdued compared to past cycles," he added.

Nicola Powell, chief economist at Domain, echoed similar sentiments, suggesting that any potential rate cuts may not be on the agenda until well into next year. "We've already seen a 6 percent reduction in the median house price, so a 10 percent drop is quite possible," she stated, emphasizing the need for improved buyer confidence, which is contingent upon discussions around potential rate cuts.

Real estate professionals have noted a marked decrease in inquiries at open homes. Sam Devlin, a real estate agent in Brisbane, mentioned that interest has waned since the federal budget in May. "The government's taxation policies regarding negative gearing and capital gains tax have significantly impacted market dynamics," he said. Buyers, including those looking to upgrade their homes, are approaching auctions with uncertainty about their financial capabilities.

In Melbourne, real estate agent Jin Ling observed similar trends, with buyers becoming increasingly cautious. "They are weighing whether to wait a year to see how the market evolves and whether prices might decrease further before making a decision," he noted. Ling speculated that it could take years for property values to experience a robust recovery.