Australia’s biggest property downturn since pandemic threatens economic growth

Figures from property consultant Cotality released on Tuesday showed national home prices fell 0.9 per cent in August from July, when they dropped 1.2 per cent. Sydney ‌and Melbourne again led the monthly decline with falls of 1.4 per cent and 1.1 per cent, leaving prices down about 7 per cent from their peaks.

Falling house prices threaten to erode household wealth and curb consumer spending just as Australia’s economy faces the risk of a sharper slowdown. Data on Wednesday is expected to show annual economic growth eased to 1.8 per cent in the second quarter, from 2.5 per cent in the first quarter, a cooling engineered by the Reserve Bank of Australia (RBA), which has warned interest rates can still go higher.

“We are probably only about 35 per cent of the way through the slump both in terms ⁠of the percentage fall and months,” said Shane Oliver, chief economist at AMP, who is tipping a peak-to-trough home price fall of 10 per cent in this cycle ‌and a turnaround in the second half of next year.

“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,” he said.