Skip to main content

Housing downturn not over yet

Australia’s house prices have rebounded over the last couple of months and most leading indicators suggest that the recovery has legs. However, we doubt that a sustained recovery is on the cards. While false dawns in the housing market are rare, they did happen during the 1980s and 1990s. And while a souring of the labour market didn’t prevent house prices from rebounding in recent decades, that partly reflects the fact that the RBA responded to rising unemployment by cutting interest rates. With inflationary pressures still very strong, the Bank has less scope to ease policy in current circumstances and we only expect the first rate cut in Q2 2024. Even if we are wrong and house prices keep rising, we suspect that any rebound would be very weak by historical standards. After all, housing affordability has never been this stretched at the end of a downturn. That means that house prices would probably keep falling in real terms, which bodes ill for dwellings construction. Indeed, we still expect dwellings investment to fall by another 7% from current levels.

Become a client to read more

This is premium content that requires an active Capital Economics subscription to view.

Already have an account?

You may already have access to this premium content as part of a paid subscription.

Sign in to read the content in full or get details of how you can access it

Register for free

Sign up for a free account to gain:

  • Unlock additional content
  • Register for Capital Economics events
  • Receive email updates and economist-curated newsletters
  • Request a free trial of our services

Get access