Australian house prices could fall by up to 6 per cent over the next two years, with one economist predicting the decline may finally help first-home buyers break into the market.
HSBC chief economist Paul Bloxham told Sunrise on Thursday home values were expected to remain relatively flat through 2026 before declining nationally by between 3 per cent and 6 per cent in 2027.
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The forecast comes as economists warn higher interest rates, tax changes and slowing economic conditions are beginning to weigh heavily on the property market.
Bloxham said three major factors were behind the prediction, starting with rising borrowing costs.
“The first one is interest rates have gone up three times already. And so we’ve had a tightening in financial conditions,” he said.
“The second one is that we’ve seen some tax changes come through the budget. Of course, the arrangements around negative gearing and for the capital gains tax arrangements as well for existing dwellings.”
Bloxham said an expected economic slowdown as the Reserve Bank continues its fight against inflation was also likely to drag on the housing market.
“That combination tells us that house prices are likely to not just slow down. The housing market is not just likely to cool, but we’re likely to see house price declines,” he said.
While falling house prices might sound an alarm for existing homeowners and investors, Bloxham said the downturn could improve affordability for younger Australians locked out of the market.
“If you want to improve housing affordability, the primary way you do it is by seeing house prices come down,” he said. He said reduced investor demand for existing properties could also create more opportunities for first-home buyers.
“That will put a floor under it. That will mean that even though we’re expecting house price declines, they’re not going to get a decline even more, because actually you’re going to get some support from first-time buyers in the market,” he said.
