Australia’s housing market could be on the brink of its most significant adjustment in four decades, according to former treasury economist Leith van Onselen. He attributes this looming shift to a convergence of rising interest rates, an influx of housing supply, and a softening employment landscape, which together create what he describes as a ‘perfect storm’ poised to impact property values.
Van Onselen points to the Reserve Bank’s ongoing battle against inflation as a key factor setting the stage for a widespread downturn. “We’ve experienced three successive rate hikes,” he noted, adding that rates have returned to last year’s peak levels before the Reserve Bank of Australia (RBA) began easing them in February.
He further observed that market expectations still anticipate at least one additional rate increase. “The RBA’s commentary following Tuesday’s rate hike was notably hawkish, reflecting their heightened concern about inflation,” van Onselen explained.
Drawing parallels with other nations, van Onselen suggests that Australia might mirror trends seen in comparable economies like New Zealand and Canada, where house prices have already declined by approximately 20 percent. This international precedent heightens the anticipation of a similar trajectory for Australia.
‘The RBA was incredibly hawkish in their commentary on Tuesday’s rate hike… they were very concerned about inflation.’
Mr van Onselen said Australia was likely to follow the path of comparable economies such as New Zealand and Canada, where house prices have already fallen by about 20 per cent.
The Reserve Bank last Tuesday lifted the cash rate by 0.25 percentage points to 4.35 per cent – the third increase this year – citing persistent inflation partly driven by the Iran conflict, with Westpac forecasting two further rate hikes in August and September.
The increasingly hawkish stance has intensified fears the property boom is running out of steam, with a growing number of economists and data firms warning higher borrowing costs could trigger a sharp downturn in house prices.
Macrobusiness chief economist Leith van Onselen (pictured) warned a ‘perfect storm’ is brewing that could send Australian home prices tumbling
National auction clearance rates have fallen 10 per cent to 54 per cent compared with the same time last year, according to the latest Domain data
Property market expert Catherine Cashmore of Land Cycle Investor has long warned of a downturn between late 2026 and 2027 and said the latest rate hike had rattled the housing market.
‘I’ve been hearing a lot of news on the ground from people that are selling in Perth who are saying that the market is softening there,’ she said.
‘I heard a similar report from Brisbane from someone who’s just dropped the price of their home that they’re selling there, and it all feels a little bit dismal.’
Ms Cashmore forecast Australia was not just entering a property price downturn but heading into a recession.
‘We’re heading into a full blown recession, where we will see property prices drop, but we’ll also see businesses go out of business, panic in the stock market,’ she said.
‘We would be looking at a general panic and definitely heading into a recessionary environment. And I don’t think that that’s too much of a stretch.’
AMP senior economist Shane Oliver said the housing market is already losing steam, with prices limping up just 0.3 per cent in April, the slowest rise in more than a year.
‘Prices fell in Sydney and Melbourne and while the boom time, mid-sized cities of Brisbane, Adelaide and Perth remained strong, they are seeing slowing growth too,’ he said.
Homeowners selling in Brisbane (pictured) are already reporting they are dropping the prices of their homes as a perfect storm of conditions begins to drive a property downturn
Property market expert Catherine Cashmore of Land Cycle Investor (pictured) has long warned of a downturn and said the latest rate hike had rattled the housing market.
‘The slowdown reflects a combination of rate hikes, buyer uncertainty associated with the Iran War and its impact, and increasing uncertainty around the tax treatment of property going into the budget, along with poor affordability.’
Oliver forecast house price growth will slump from 8.6 per cent in 2025 to just three per cent in 2026, with a real risk values could slide if interest rates stay higher for longer and the oil shock drags on.
Domain chief economist Nicola Powell said Sydney and Melbourne remain the most sensitive to interest rate movements.
‘Sydney and Melbourne are showing the clearest signs of strain, with price growth stalling or reversing as affordability pressures bite,’ she said.
‘Sydney house prices stalled over the March quarter, edging down 0.04 per cent to $1.79million and ending a three-year run of uninterrupted growth.
‘Melbourne house prices declined 0.6 per cent to $1.08million – the first fall in 1.5 years – ending a five-quarter run of growth.
‘This also ends the longest uninterrupted upswing since 2020-21 and highlights how quickly Melbourne responds to shifts in borrowing conditions.’
