Australian house prices could decline by up to six per cent over the next two years, according to HSBC chief economist Paul Bloxham, who suggests the downturn may finally enable first-home buyers to enter the market.
Forecast details
Speaking to Sunrise on Thursday, Bloxham said home values are expected to remain relatively flat through 2026 before falling nationally by between three and six per cent in 2027. The prediction comes as economists warn that higher interest rates, tax changes, and slowing economic conditions are beginning to weigh heavily on the property market.
Key factors behind the decline
Bloxham identified three major factors driving the forecast. The first is rising borrowing costs. "Interest rates have gone up three times already. So we've had a tightening in financial conditions," he said. The second factor involves tax changes introduced in the budget, particularly around negative gearing and capital gains tax arrangements for existing dwellings. The third factor is an expected economic slowdown as the Reserve Bank continues its fight against inflation, which is 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," Bloxham said.
Opportunity for first-home buyers
While falling house prices may alarm existing homeowners and investors, Bloxham said the downturn could improve affordability for younger Australians who have been 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 added that reduced investor demand for existing properties could 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 decline even more, because actually you're going to get some support from first-time buyers in the market," he said.
