National Australia Bank have issued a bleak outlook for Australia’s housing market in which it said it expected prices to plummet by up to 10 per cent in some areas.
The bank said in its housing monitor that it expects dwelling values across the capital cities to finish about five per cent lower, more than doubling the size of the correction it was predicting only a month ago when it said house prices were expected to drop just two per cent.
Markets that had largely escaped the worst of higher interest rates — including Brisbane, Perth and Adelaide — have weakened far more quickly than expected, forcing NAB to tear up its previous forecasts.
Sydney and Melbourne are each tipped to record 10 per cent declines.
The downgrade comes as new data suggests Australia’s housing market is losing momentum at a pace not seen for several years.
Property analytics firm Cotality found national dwelling values fell 0.7 per cent in July, the steepest monthly decline since late 2022, with prices now retreating across almost every mainland capital.
NAB said recent market conditions had deteriorated more quickly than anticipated, particularly outside the eastern seaboard’s two largest markets.
Several of the country’s biggest housing analysts have also warned Australia could be heading towards its deepest property correction in decades if interest rates remain elevated.
Morgan Stanley has forecast an 8.2 per cent peak-to-trough fall national. If correct, that decline would eclipse every housing downturn since the 1980s.
Cotality research director Tim Lawless believes the market could fall even further.
“I wouldn’t be surprised if housing prices fall by around 10 per cent. That will be the largest decline over the past 40 years, at least,” he said.
Expensive suburbs are leading the declines as larger mortgages leave borrowers more exposed to tighter lending conditions.
In Sydney, homes worth more than $2.2 million have lost almost seven per cent over the past year, while more affordable housing has continued to rise in value.
Melbourne is showing much the same pattern, with premium suburbs accounting for some of the most dramatic falls.
Homes are now piling onto the market amid the predictions of a long-term correction.
SQM Research says the number of properties listed for sale has jumped almost 23 per cent nationally compared with a year ago, with Sydney listings up 28 per cent and Melbourne soaring almost 43 per cent.
Research director Louis Christopher said more choice for buyers — combined with slower sales — would likely keep prices under pressure through spring.
“More properties are coming onto the market, but they’re also taking longer to sell.”
‘A pretty sharp pullback’
The growing number of bearish forecasts comes after years of extraordinary gains that pushed Australian housing to record highs, with many economists arguing some form of correction was inevitable.
Housing Minister Clare O’Neil has described the current slowdown as a normal part of the property cycle.
“The housing market’s cyclical in Australia… We see periods of very significant house price growth and then we see the market make a correction, and that’s what we’re seeing at the moment,” she told the ABC.
But not everyone agrees on how severe that “correction” could become.
Cotality research director Tim Lawless has warned the market is now “undergoing a broad-based weakening”, pointing to higher interest rates, affordability pressures and a sharp pullback in investor activity.
“Speaking to people on the ground, some more anecdotal evidence does suggest there’s been a pretty sharp pullback in investment activity already.”
Domain chief economist Nicola Powell has argued the downturn is broadening beyond Sydney and Melbourne, but stopped short of calling it a full correction.
“We are seeing softer market conditions and that’s really being led by Sydney and Melbourne,” she said via ABC News.
“I think a correction would be where we’re seeing a significant drop in property prices, I’m talking in excess of 10 per cent, and that is not what we’re currently seeing unravelling.”