Capital city home owners, brace yourself: the property market’s latest scorecard has a very expensive line item, and whether it gets worse comes down to what the Reserve Bank does next.
On housing there’s bad news, even more bad news, good news and even more good news, and it’s all about matters linked to the property sector. However, these scenarios do rely on the Reserve Bank and what it does with interest rates.
The AFR headline, thanks to the price work of Cotality, told us Sydney home prices were down by $100,000 but given where average residential dwelling prices were at the end of 2025, a huge number of homeowners in the country’s capital cities could join the ‘100k Losers Club’.
The table below from gdp.com.au shows that the vast bulk of property owners had assets worth close to $1 million and as a 10% drop in house prices is now expected by experts, that’s where my $100,000 loss number comes from.
Of course, while some homeowners with more valuable properties will lose more and others less, the combined whack of three interest rate rises, petrol and power price hikes that many economists seem to ignore in their figuring and forecasting, as well as the Budget’s effects on house prices, consumer confidence and business plans to invest, all are big hits on the economy that the RBA cannot ignore.
The central bank’s interest rate setting board meets on September 29 and Cup Day November 3. By then, the impact of all those negatives should be understood and factored into what the Bank should do with interest rates.
Losing $100,000 in home value creates what economists call a negative wealth effect but the quickness of its effect on spending comes with a lag that no economist is sure about. But if the RBA listens to those economists who are tipping one or even two more rate rises, then it could court a collapse of spending that might set us up for a recession. It means the data drop in coming weeks will be crucial to what the RBA decides.
Here are the key dates:
- 2 September: GDP
- 24 September: Unemployment
- 30 September: CPI Inflation
- 15 October: Unemployment
- 28 October: CPI Inflation
There will be other data drops including building approvals, new credit or loans, house prices and more but the big watches will be what’s happening to jobs and prices. And given the uncertainty of the combined hit of the Budget and three rate rises since February, the RBA should wait until November before imposing another hip pocket hit to Australian consumers.
You have to hope that the RBA reads the AFR story by Lucy Slade that points to the views of experienced house price expert, Tim Lawless of Cotality (which once was called CoreLogic).
“This is becoming more of an entrenched downturn and much more widespread, as 93 per cent of capital city suburbs are down in value over the past three months,” he said. “The [federal] budget is certainly adding to the weakness in the housing market, but it’s not the only factor. This is more about higher interest rates, low confidence and a backdrop of affordability challenges also influencing the market.”
He’s talking a perfect storm that a lot of economists’ economic models are used to factor in when they make their big calls on what should happen to interest rates.
HSBC’s chief economist Paul Bloxham put the role of the RBA in helping or hurting this house price slump into context. “You’re going to need to see a circuit breaker before the housing market actually starts to turn, before buyers feel like they want to come back,” he told Slade. “That circuit breaker is normally the market starting to believe that interest rates are going to come down.”
Cotality figures show the big price falls over the past year were:
- Bronte (NSW): 12.2%
- Peppermint Grove (WA): 12.5%
- Double Bay (NSW): 11.5%
- Dover Heights (NSW): 10.6%
Interestingly, these are not Labor-voting suburbs, but if this price crash gathers more steam and more middle class suburbs see big price falls, the already waning popularity of Anthony Albanese and Jim Chalmers will undoubtedly suffer.
Once again, the RBA and Michele Bullock’s board that sets interest rates will be very important to Albo and Jim.
Tomorrow, we see the economic growth figures for the year to June 30, so they won’t tell the complete story of what has happened to the drivers of the economy since the May Budget. Understanding the real impact of three rate increases, petrol and power price hikes, other inflationary hits on household hip pockets and the housing price slump isn’t easy.
I sure hope the RBA gets it right.
