Australian home prices fell for a fifth consecutive month in August, recording their sharpest downturn since the pandemic as persistent inflation and the prospect of higher interest rates weighed on the housing market.The country’s home prices declined 0.9 per cent from July, when they fell 1.2 per cent, according to property consultant Cotality. Sydney and Melbourne led the decline, with prices falling 1.4 per cent and 1.1 per cent, respectively. Values in both cities are now about 7 per cent below their peaks, reported Reuters.The downturn has spread beyond the two largest markets, with Brisbane and Perth falling 1 per cent and 0.8 per cent in August after recording double-digit gains earlier this year. Nearly all capital cities recorded declines during the month.The housing slowdown comes as higher borrowing costs and persistent inflation squeeze demand. The Reserve Bank of Australia has raised its cash rate three times this year to 4.35 per cent, while markets are pricing in another increase following a stronger-than-expected inflation reading for July.Analysts expect the housing correction to deepen. Shane Oliver, chief economist at AMP, estimates prices could fall 10 per cent from peak to trough in the current cycle. “We are probably only about 35% of the way through the slump both in terms of the percentage fall and months,” Oliver said, forecasting a recovery in the second half of next year.“The home price slump will weigh on economic growth, but is not significant enough yet to change the direction of the RBA rate moves from up to down given the inflation problem,” he said.UBS also expects the decline to approach 10 per cent, which would make it one of Australia’s more severe housing downturns. The bank expects the RBA to raise rates by another 25 basis points by November, while warning that the possibility of an earlier hike in September has become material.The weakness in housing is also reflected in transaction activity. Cotality research director Tim Lawless said home sales over the past three months were 15.5 per cent lower than a year earlier, pointing to weaker demand and reduced buyer confidence.“Longer selling times, larger vendor discounting and persistently low auction clearance rates all point to a buyer’s market, yet buyers are lacking the confidence to transact at the moment,” Lawless said.The housing slowdown could have broader economic consequences because the sector supports a wide range of industries, including real estate services, construction and trades. Slower housing activity could also weigh on household wealth and consumer spending as Australia’s economy loses momentum.Government tax changes announced in May have further cooled investor demand, while housing credit growth has also begun to slow.
