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When Will Australian House Prices Crash?

September 6, 2024
When Will Australian House Prices Crash in 2023

Key takeaways:

    • The Australian housing market is resilient with strong auction clearance rates and strong economic conditions showing that a crash is unlikely.

    • Population growth, low interest rates, and supply shortages create opportunities for the property market in 2024.

    • Strategic investors can take advantage of a thriving property market by timing their purchases & diversifying investments to maximize gains.

With Australia’s housing market continuing to perform resiliently, many are left wondering: When will Australian house prices crash?

Despite concerns over rising interest rates and global economic uncertainty, a dramatic property market crash remains unlikely for several key reasons.

Whether you’re looking to buy real estate for yourself or as an investment, let’s dive in and uncover the secrets of the Australian housing market!

Gain more knowledge: Is Australia in a Housing Bubble Right Now?

1. Strong Housing Demand vs. Supply Shortages

Housing demand continues to be fueled by rapid population growth and strong levels of overseas migration, with the government aiming to bring in skilled workers to address labor shortages.

Australia is projected to need around hundreds of thousands of new homes over the next few years to accommodate these new arrivals​.

At the same time, housing supply has not kept pace. The rising costs of labour rates—up 33% since the pandemic—coupled with material shortages have slowed down housing developments​.

This supply constraint helps explain why property prices in cities like Sydney, Perth, and Brisbane are predicted to rise throughout 2024 despite the pressure of interest rate hikes​.

2. Rising Interest Rates and Mortgage Stress

When Will Australian House Prices Crash in 2023

The Reserve Bank of Australia (RBA) has been steadily increasing interest rates since May 2022 to control inflation, with the cash rate rising from 0.35% to 4.35% by November 2023.

This has had a significant impact on purchasing power, making it harder for buyers to borrow large amounts​.

While interest rates may decrease slightly by late 2024 or early 2025, they are unlikely to return to the low levels seen before the pandemic​.

Tim Lawless from CoreLogic notes that the long-term growth in property prices before and during the pandemic was largely due to historically low interest rates.

However, he warns that another period of consistently falling rates is unlikely in the foreseeable future​.

Property experts say that rising interest rates haven’t caused house prices to crash. Instead, higher rates have forced buyers to adjust their expectations.

Rather than purchasing premium properties, many buyers are now competing for lower-priced homes, driving up demand in the more affordable segments of the market​.

This dynamic has helped housing prices remain stable in many capital cities, with Sydney, Brisbane, and Adelaide expected to see price increases in 2024.

Auction clearance rates in these areas are also holding strong, signaling continued buyer confidence​.

3. The Impact of Property Cycles

Historically, property markets operate in cycles. Although Australian house prices saw a slight dip in 2022, the market quickly recovered in 2023, bouncing back with a “V-shaped” rebound​.

Periods of slight decline are normal and healthy, as they allow affordability to improve for first-home buyers​.

Nevertheless, the long-term trend remains upward, with economists predicting that house prices across most of Australia’s capital cities will continue to rise modestly over the next year​.

The recovery from the pandemic-induced downturn has been quicker and stronger than many anticipated, especially in regional Australia.

4. Government Policies Supporting the Market

When Will Australian House Prices Crash in 2023

Government intervention also plays a critical role in the property market.

Programs like land tax changes and special government grants and schemes for first-time homebuyers help make it easier for people to buy homes.

These programs act like a safety net by lowering costs or offering financial support, which encourages more people to step into the housing market and buy their first home.

Additionally, the Labor government’s commitment to building 1.2 million new homes by 2029, while ambitious, is expected to somewhat alleviate housing supply pressures over the next decade​.

However, even with these measures, the housing shortage will continue to push property prices higher, especially in high-demand areas like Sydney and Melbourne​.

How Far Could Prices Fall?

When Will Australian House Prices Crash in 2023

Though a full-blown property market crash remains improbable, there could still be localized declines. In Melbourne, for instance, housing values have already dropped 0.9% over the most recent quarter​.

Lawless adds that, while the Australian property market is currently undersupplied, it’s possible that within the next few years, the pendulum could swing the other way, leading to a slight oversupply and some downward pressure on prices​.

“Supply is also a big factor for Victoria, where the state saw more dwelling completions over the past decade than any other state or territory. ACT also saw a spike in unit completions from 2019 to 2023, which has helped keep downward pressure on the overall dwelling market.”

However, this would still not constitute a housing market crash, but rather a natural correction.

Conclusion: No Crash on the Horizon

When Will Australian House Prices Crash in 2023

While some Australians may be holding out for a housing market crash, the reality is far from it.

A combination of housing demand, tight supply, and supportive government policies has ensured that property prices will remain stable or even grow in many regions across the country.

For buyers, especially first-home buyers, this means adjusting expectations in terms of affordability and looking at alternatives such as regional Australia for more affordable housing​.

Meanwhile, property investors and strategic buyers will continue to see opportunities for capital growth as the market adapts to changing conditions.

This year, assessing the Australian property market will require careful consideration of rising interest rates, mortgage repayments, and long-term housing values.

However, one thing is clear: a housing market crash is not on the cards.

Instead, buyers and investors should focus on identifying opportunities in an evolving, but stable, market landscape.

Frequently Asked Questions

Will house prices drop in 2025 in Australia?

According to property experts on Australia’s capital cities, house prices are not going to drop in 2025. On the contrary, they are expected to increase across the country over the second half of 2024, followed by a rise in 2025.

What will houses be worth in 2030 Australia?

It looks like house prices in Australia are set for an increase over the next decade.. This means that by 2030, homes in our capital cities could be worth up to $1.1 million, though individual properties can easily out-perform this prediction.

What is the real estate forecast for the next five years in Australia?

Experts are predicting house prices to double in the next five years. You can read more about this in Soho’s article: What Will Predicted House Prices in 2030 Australia Look Like?

What factors have contributed to the strength of the Australian housing market?

The strong Australian economy, coupled with low-interest rates and a lack of supply, has been a contributing factor in the growth of the Australian housing market.

This has led to an increase in house prices, making it more difficult for first-time buyers to enter the market. As a result, many Australians are turning to alternative housing options such as renting or shared living arrangements.

Soho
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