Australia’s house prices are now falling at a similar rate as they did during the 2017-19 downturn, which was the largest in the country’s modern history. Home sales remain well above pre-pandemic levels, building activity is holding up and construction firms are upbeat about the outlook for their industry. However, if the RBA hikes interest rates to 3.6% as we anticipate, housing will become the least affordable since the global financial crisis. As a result, home sales and prices will continue to fall, which will make it less attractive to build new apartments. And with houses accounting for a record share of housing wealth on the eve of the current downturn, falling housing wealth will weigh on consumer sentiment. Finally, the spending categories that have seen the largest increase since the start of the pandemic are the ones that are most sensitive to changes in house prices and will therefore come off the boil. The upshot is that GDP growth will slow to a crawl next year.
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