RBA Prepared to Hike Rates Despite Historic Housing Market Downturn
The Reserve Bank of Australia (RBA) appears set to defy the gravity of a cooling property market, with economists predicting a fourth interest rate hike as the central bank remains laser-focused on taming persistent inflation.
New data from Cotality paints a stark picture of the national landscape, revealing that home values are now in decline across more than 90% of Australian suburbs. This cooling trend is being driven by a “perfect storm” of aggressive borrowing costs, a sluggish economy, and significant shifts in the tax treatment of property investors.
A Historic Correction
Shane Oliver, AMP’s chief economist, anticipates that the downward trajectory will persist for the next six to nine months. By that time, he predicts national property prices could be approximately 10% below their recent peak.
“That would be the worst in the postwar period,” Oliver noted, though he contextualized the figure by comparing it to the 8% correction seen during the 2022-23 period.
CBA analysts have provided an even grimmer outlook, projecting a 12–13% decline in Sydney and Melbourne, with Brisbane, Perth, and Adelaide bracing for an 8% slide. Despite these significant losses, experts warn that the relief for homebuyers will be minimal.
“In some ways, this just takes us back to where we were a year ago for many cities across the country,” Oliver said. “We were complaining about [the state of] housing affordability then, so not much will change.”
Inflation Remains the Primary Target
RBA Governor Michele Bullock has maintained that while the property downturn is a point of discussion, it is “not the main game” when determining monetary policy. With property prices still holding roughly 50% above 2020 levels, the central bank’s priority remains the volatile inflation rate.
Economists agree that the housing market’s weakness is insufficient to deter further tightening. Jonathan Kearns, the chief economist at Challenger and a former senior RBA official, stated that while the correction is occurring “harder and faster than anticipated,” it is not large enough to pause the rate hike cycle, which many expect to continue in November.
Economic Growth Hits a Wall
The pressure on the RBA is compounded by looming GDP figures expected to show that the economy has ground to a near-halt. CBA head of Australian economics, Belinda Allen, predicts growth of just 0.1% for the June quarter—the weakest result in two-and-a-half years.
“If these numbers print as expected, it shows the Australian economy has slowed, but inflation has not,” Allen said. She pointed to a combination of persistent supply shocks, shifts in domestic spending, and stagnant productivity as the key drivers forcing the RBA’s hand.
As the RBA board meets in the coming weeks, they face a delicate balancing act: curbing inflation without pushing a fragile economy into a deeper, more painful recession.
